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ETH value surge may trigger ‘gamma squeeze’ as bull market heats up: Delta Change exec


A growing number of options traders are sitting on large, unrealized losses after the recent price hike of Ethereum (ETH), again underscoring the volatility and unpredictability of the cryptocurrency market.

Pankaj Balani, the CEO of Delta Exchange, a St. Vincent-based cryptocurrency derivatives platform, told Cointelegraph that “he has seen a lot of bare call writing activity at ETH to use money calling options up to $ 2,000 and over $ 3,000 strikes . ”

A call option goes deeply out of the money if its strike price is well above the current price of an underlying asset – in this case Ethereum.

Balani said:

“With prices soaring, short call option positions are causing heavy unrealized losses, forcing option writers to buy more ETH to cover their short gamma exposure.”

According to Balani, traders sold call options in December and January with a strike price of $ 2,000 and more, thinking the price of Ethereum would not go up anytime soon and their options would expire worthless.

“There is a chance these options being sold will not expire worthless,” he said.

If Ethereum rises higher, this scenario will only worsen and force additional buying activity. In the options market, this feedback loop is known as a gamma squeeze.

According to industry data, Delta Exchange achieved a trading volume of over $ 56 million on Thursday.

When asked if ETH sellers could experience a GameStop-like gamma squeeze, Delta said the two scenarios are not exactly the same as GME’s surge was associated with orchestrated purchases. Ethereum, on the other hand, does not appear to have orchestrated the buying activity.

Ether surpassed $ 1,650 on Wednesday on its way to new all-time highs. The rally appears to be a continuation of the bull market that began last year when Ethereum, Bitcoin (BTC) and the broader cryptocurrency market rebounded.

Ethereum is also benefiting from the DeFi boom as several high profile projects build on the developer network. According to the latest industry data, more than $ 32 billion has been committed to the DeFi market.

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