The hidden signal from the derivatives market suggests that Ether’s (ETH) rally will be strengthened to allow it to quickly lift its valuation to $4,400.
The indicators considered are the net gamma exposure of dealers/market manufacturers in the Delibit listed ether options market. Gamma is an important metric for options traders and measures how the delta of options, or the sensitivity of the underlying asset to the price, changes as market movements.
If the dealer is short gamma, it will be forced to buy the underlying asset as prices rise and sell as prices drop. Dealers make money from the spread of bid asks, providing liquidity in their order books and constantly strive to maintain a price-neutral net exposure.
At the time of press there was a noticeable accumulation of short gamma between $4,000 and $4,400 strikes, according to data source Amberdata. Once the ether exceeds $4,000, dealers can buy assets to hedge exposure and create a self-enhancing positive feedback loop that can quickly drive prices to $4,400. This is a level where gamma dynamics change positively, requiring dealers to trade with the market and arrest price volatility.
Ether options: Dealer gamma distribution. (Deribit/Amberdata)
This will make $4,400 a logical price magnet for the ongoing gathering.
“If the market momentum is strong enough to get past $4,000, we can see that dealers could become net buyers of ETH at a higher price and quickly rally at their next big cat stock level, $4,400,” Amberdata’s derivatives director Greg Magadini told Coindesk.