It is anticipated that the Ethereum Merge will take place between September 10 and September 20. The Merge will mark the end of an extended process for changing Ethereum’s Proof-of-Work algorithm to Proof-of-Stake. The Merge is this year’s most eagerly awaited blockchain and cryptocurrency event from a fundamentals viewpoint.
There would probably be a speculative frenzy and huge volatility in the ETH markets right now if it occurred during a bull market.
Ether still trades roughly 70% behind its all-time high of $4,950 from November 2021, despite recording strong gains between June and September. Therefore, there is still a chance that it will decline.
According to Deribit statistics gathered by Glassnode, Ethereum options traders predict that ahead of the Merge, Ether’s price will rise from its present $1,540 level to $2,200. Some even predict a $5,000 price, but since the transition to PoS, interest appears to have waned.
Traders are examining the risk after Merge
A so-called “options implied volatility smile” statistic suggests that traders after the Merge are seeking downside protection (OIVS). OIVS uses various strikes for the particular expiration date to demonstrate the implied volatilities of the options. As a result, implied volatility is often higher in contracts out of capital and vice versa.
For instance, traders can examine the relative cost of options and determine what kinds of tail risks the market is pricing in by examining the smile’s steepness and shape in the Ethereum’s Sept. 30 options expiry chart below.
As a result, the upward slope of the volatility smile indicates that there is significant buy-side demand for September expiration ETH call options and that traders are willing to pay a premium for a long exposure. Further, as shown in the OIVS chart below, which also shows Call and Put open interests at various strike rates.
“Post Merge, the left tail is pricing in significantly higher implied volatility, indicating traders are paying a premium for sell-the-news’ put-option protection post-Merge,” according to Glassnode analysts.