Volatility #101 — Can ETH surprises us this week?
Macro situation: The cryptocurrency market is under pressure from macroeconomic news. A cycle of rate hikes by developed countries’ central banks, high global inflation, political tensions ahead of the US election period, global supply chain disruption and local military conflicts are all negatively affecting long-term investor sentiment. Due to the current high correlation with the stock market, cryptocurrencies are also declining, with total market capitalisation down by more than 50% since the beginning of the year.
Local trend: Ethereum is in one of the most important stages of its development — the transition from Proof-of-Work to Proof-of-Stake transaction confirmation mechanisms. This change is technically very complex and contains many risks. In order to test the theories in practice, the merge process according to the roadmap will initially be implemented in a test Ropstein network. The outcome will be known after 8 June. In addition to important news for the project in the near future, a US Federal Reserve meeting is expected on 15 June, the outcome of which could have a significant impact on the price in the short term.
Investment idea: The Federal Reserve meeting on June 15 and the expected announcement of the test protocol update results could significantly impact Ethereum’s volatility levels.
Entry options: Buy spread at the current strike (1800 USD at the time of writing) — call and put options with the same price and expiration date (June 17). Thus, in the event of increased volatility, profits are expected from a significant price movement.
If the price reaches 1500 or 2100 USD at the time of expiration, the return will be determined as follows: on 06.06.2022 the average total premium was 195 USD for both options, corresponding to a profit of 105 USD (53% of the investment, 1938% p.a.). If options are exercised before the expiration date, the final result may differ depending on market conditions.
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