Deribit, the dominant crypto derivatives market, will expire options contracts tied to Ether (ETH) valued at $2.3 billion on Friday.

The market has a small spread between Deribit’s 30-day forward-looking implied volatility index (ETH DVOL), and bitcoin (BTC DVOL), ahead of the pivotal quarter settlement.

Deribit believes that the spread is negative because of an increase in institutional interest to “overwrite” or sell ether call options. This dynamic has created a market environment that is ripe for significant shifts in the days leading up to Friday’s expiration.

Overwriting is the act of selling or writing call options that are overvalued or bullish derivatives against long-term positions. This is a common way to generate additional income over and above spot market holdings. Call sellers offer protection from price increases to buyers in exchange for a fixed payment.

Since the start of the year, has experienced large overwriting flows reflecting in ether. This has lowered the implied volatility for ETH. Implied volatility (IV), which is traders’ expectation of price volatility, is positively affected by the demand for option.

Overwriters can rollover their positions as June contracts are due to settle on Friday. Overwriters may roll over their positions if they are unable to settle June contracts on Friday. This could lead to significant changes in the price of IV in the bitcoin and Ether markets.

“ETH has seen substantial institutional selling activity (in call options), earning a trader’s moniker as an ETH volatility-selling whale!” This has led to a situation where the implied volatility index (Vix) for ETH is less than BTC, according to Deribit’s chief risk officer Shaun Fernando.

Fernando said that as these positions near expiration, they could cause a dramatic shift in volatility as the participants consider rolling their positions over.

Last week, the spread reached a low of three years (Amberdata).

Amberdata, a data source, reported that the ETH/BTC DVOL Spread was -2.5 at press time. It had hit a low of -7.8 in three years last week. The implied volatility (IV) represents traders’ expectations of price turbulence for a certain period. This is positively affected by the demand for option. Call options represent a bullish wager on the underlying asset while put options represent a bearish wager.

According to Paradigm, an over-the counter liquidity network, ether is likely to remain around $1,800-1,900.

In its latest market update, Paradigm stated that “in terms of ETH Dealer Gamma heading towards expiration, we anticipate $1,800-$1,900 strike to be a magnet to spot, primarily because dealers have largely gotten long due to the previously discussed overwriter flow.”

Long gamma is the term used to describe holding long (buy) positions in options. Market makers who are long gamma buy low and then sell high in order to maintain a neutral market exposure. Hedging can lead to prices remaining rangebound.

Oliver Knight is the editor.