# How to Use Crypto Options to Bet on Ethereum's Next Major Upgrade? ▴ Question

**Published:** 2025-08-05
**Categories:** Question

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## Concept

An impending Ethereum network upgrade represents a discrete, known-unknown event on the market horizon. The precise outcome is uncertain, but the potential for significant price oscillation is a near certainty. From a systems perspective, this provides a powerful opportunity to move beyond simple directional speculation and toward a more architectural approach to risk and reward. [Crypto options](https://prime.greeks.live/area/crypto-options/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) provide the specific toolkit for constructing a position that isolates and capitalizes on the event’s core variable which is the anticipated explosion in volatility.

The primary function of an options contract in this context is to provide a non-linear payoff structure. A direct investment in Ethereum, either through spot holdings or perpetual futures, creates a linear exposure. The profit or loss scales directly with the price movement of the underlying asset. An options-based structure, conversely, allows a portfolio manager to define the precise parameters of their market exposure.

One can build a position that profits from a substantial price move in either direction, a structure that profits only if the price exceeds a certain threshold, or a position that profits from the simple passage of time if the expected volatility fails to materialize. This level of granularity is the foundational principle of institutional derivatives trading.

> A major network upgrade is a predictable catalyst for market volatility, and options are the instruments designed to structure a precise view on that volatility.

Viewing an upgrade through the lens of [market microstructure](https://prime.greeks.live/area/market-microstructure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) reveals that the event itself is a massive information shock. The market must rapidly price in the consequences of the new code, whether they are bullish, bearish, or simply disruptive to the existing equilibrium. This rapid repricing manifests as a spike in realized volatility.

The core concept of using options is to purchase a claim on this future volatility at a price determined by the current [implied volatility](https://prime.greeks.live/area/implied-volatility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The bet, in its purest form, is that the actual price movement will be more dramatic than the market currently anticipates, as reflected in the price of the options.

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## What Is the Core Financial Instrument?

The instruments at the center of this strategy are European-style call and put options. A [call option](https://prime.greeks.live/area/call-option/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) grants the holder the right, without the obligation, to purchase Ethereum at a predetermined ‘strike’ price on a specific [expiration date](https://prime.greeks.live/area/expiration-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). A put option grants the right to sell under the same conditions. The price paid for this right is the ‘premium’.

The value of this premium is a complex interplay of variables, but the most important for this specific use case is Implied Volatility (IV). Implied volatility is the market’s forecast of the likely movement in the underlying asset’s price. When you buy an option ahead of an upgrade, you are effectively buying a piece of this forecasted volatility.

The strategic advantage arises from the ability to combine these fundamental building blocks into structures that express a specific market thesis. A simple purchase of a call option is a bullish bet. A simple purchase of a [put option](https://prime.greeks.live/area/put-option/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a bearish bet.

An institutional approach moves beyond this to combine long and short positions across different strike prices and expiration dates to create a payoff profile that is precisely tailored to the anticipated market event. The objective is to engineer a position where the potential reward justifies the calculated risk, based on a clear thesis about the upgrade’s impact.

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## Strategy

With the foundational understanding that options allow for the purchase of volatility, the next step is to architect a specific strategy. The choice of strategy is dictated by the trader’s conviction about the two primary outcomes of the [Ethereum upgrade](https://prime.greeks.live/area/ethereum-upgrade/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ▴ the direction of the price move and the magnitude of the price move. Each strategy offers a different risk-to-reward profile and must be selected based on a rigorous analysis of market conditions and the specific goals of the portfolio.

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## Structuring a Bet on Pure Volatility

The most common strategy for events with uncertain directional outcomes is the [long straddle](https://prime.greeks.live/area/long-straddle/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This structure involves the simultaneous purchase of an at-the-money call option and an at-the-money put option with the same [strike price](https://prime.greeks.live/area/strike-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and expiration date. The expiration date should be chosen to fall shortly after the scheduled upgrade, allowing time for the market to react.

The logic of this construction is straightforward. The total cost of the position is the sum of the premiums paid for both the call and the put. The position becomes profitable if the price of Ethereum moves away from the strike price, in either direction, by an amount greater than this total premium.

The potential profit is theoretically unlimited, while the maximum loss is capped at the total premium paid. This structure is a direct bet that the upgrade will cause a price swing more violent than what the market has priced into the options’ implied volatility.

> The long straddle is an architectural design for capturing profit from a large price movement, independent of its direction.

A variation of this is the long strangle, which involves buying an out-of-the-money call and an out-of-the-money put. This structure is cheaper to implement because the premiums on out-of-the-money options are lower. The trade-off is that the price of Ethereum must move more significantly before the position becomes profitable. It is a lower-cost, lower-probability bet on an even more extreme volatility event.

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## How Do Directional Bets Work?

If a portfolio manager has a strong conviction about the direction of the post-upgrade price movement, a spread strategy offers a more capital-efficient approach. A [bull call spread](https://prime.greeks.live/area/bull-call-spread/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), for instance, is constructed by buying a call option at a certain strike price and simultaneously selling another call option with a higher strike price but the same expiration.

This structure has several advantages for institutional use:

- **Reduced Cost** ▴ The premium received from selling the higher-strike call partially finances the purchase of the lower-strike call, reducing the net cash outlay.

- **Defined Risk** ▴ The maximum loss is known at the outset and is limited to the net premium paid for the spread.

- **Defined Profit** ▴ The maximum profit is also capped, realized if the price of Ethereum closes at or above the strike price of the sold call option at expiration.

A bear put spread operates on the same principles but uses put options to construct a position that profits from a decrease in Ethereum’s price. These spread strategies are the tools of choice when the thesis is directional but the manager wishes to define risk parameters with absolute precision. They are a bet on a specific, bounded outcome.

The following table compares these core strategies across key operational parameters:

| Strategy | Market View | Cost Profile | Max Profit | Max Loss | Primary Risk Factor |
| --- | --- | --- | --- | --- | --- |
| Long Straddle | High Volatility, Direction Neutral | High (Premium for Call + Put) | Unlimited | Limited to Premium Paid | Volatility Crush (IV drop) |
| Long Strangle | Very High Volatility, Direction Neutral | Medium (Lower Premiums) | Unlimited | Limited to Premium Paid | Price not moving enough |
| Bull Call Spread | Moderately Bullish | Low (Net Debit) | Capped | Limited to Net Premium | Time Decay (Theta) |
| Bear Put Spread | Moderately Bearish | Low (Net Debit) | Capped | Limited to Net Premium | Time Decay (Theta) |

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## Execution

The successful execution of an options strategy requires more than a correct thesis. It demands a deep understanding of the operational mechanics, from order placement to [risk management](https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). For institutional participants, execution quality, liquidity sourcing, and post-trade analysis are paramount. The process transforms a strategic idea into a live, risk-managed position within a portfolio’s architecture.

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## The Operational Playbook

Executing a multi-leg options strategy around a catalyst like an Ethereum upgrade follows a disciplined, multi-stage process. The goal is to achieve the desired exposure while minimizing slippage and information leakage.

- **Parameter Definition** ▴ The first step is to define the exact parameters of the trade based on the chosen strategy. This includes selecting the expiration date, which must be far enough out to capture the event’s volatility, and the strike prices that align with the price targets. For a straddle, this would be the at-the-money strike; for a spread, it would involve selecting the long and short legs.

- **Liquidity Source Analysis** ▴ The trader must decide where to execute. A central limit order book (CLOB) on an exchange like Deribit offers transparency but may not have sufficient depth for a large block trade without moving the market. An alternative is to use a [Request for Quote](https://prime.greeks.live/area/request-for-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (RFQ) system. An RFQ protocol allows the trader to discreetly solicit quotes from multiple institutional market makers simultaneously, ensuring competitive pricing for a large or complex spread without signaling intent to the broader market.

- **Pre-Trade Analysis** ▴ Before execution, a final analysis of the position’s Greeks (Delta, Gamma, Vega, Theta) is essential. Vega measures sensitivity to changes in implied volatility. For a long straddle, Vega is positive; the position profits as IV increases. Theta measures sensitivity to the passage of time. For a long options position, Theta is negative; the position loses value each day. The trader must be confident that the potential Vega gain outweighs the certain Theta decay.

- **Execution and Confirmation** ▴ The order is placed, either as a single block via RFQ or as individual legs on the CLOB. The execution price is confirmed, and the position is booked into the portfolio management system.

- **Post-Trade Management** ▴ The position is monitored continuously. If the thesis plays out and volatility rises, the trader must decide when to take profits. If the event passes and volatility collapses (an “IV crush”), the trader must execute the exit strategy to salvage the remaining premium.

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## Quantitative Modeling and Data Analysis

A rigorous quantitative approach is necessary to understand the potential outcomes. Consider a long straddle initiated one week before a major Ethereum upgrade. The goal is to model the Profit and Loss (P&L) of the position based on the price of ETH at expiration and the post-upgrade implied volatility.

**Scenario Inputs** ▴ 

- **Current [ETH Price](https://prime.greeks.live/area/eth-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ $3,500

- **Chosen Strike Price (At-the-Money)** ▴ $3,500

- **Days to Expiration** ▴ 10 days (expiring 3 days after the upgrade)

- **Pre-Upgrade Implied Volatility (IV)** ▴ 90%

- **Call Premium (for $3,500 strike)** ▴ $250

- **Put Premium (for $3,500 strike)** ▴ $250

- **Total Premium Paid (Max Loss)** ▴ $500

The table below models the P&L at expiration under different ETH price scenarios. The breakeven points are the strike price plus or minus the total premium paid ($3,000 and $4,000).

| ETH Price at Expiration | Value of Call Option | Value of Put Option | Gross Value | Net P&L (Gross Value – $500 Premium) |
| --- | --- | --- | --- | --- |
| $2,500 | $0 | $1,000 | $1,000 | $500 |
| $3,000 | $0 | $500 | $500 | $0 (Breakeven) |
| $3,500 | $0 | $0 | $0 | -$500 (Max Loss) |
| $4,000 | $500 | $0 | $500 | $0 (Breakeven) |
| $4,500 | $1,000 | $0 | $1,000 | $500 |

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## What Is the Primary Unseen Risk?

The most significant risk in this type of trade is “[volatility crush](https://prime.greeks.live/area/volatility-crush/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” Implied volatility tends to be elevated leading up to a known event due to uncertainty. Once the upgrade occurs and the outcome is known, uncertainty evaporates, and implied volatility can drop sharply. This is a Vega risk.

Even if the price of ETH moves favorably, a significant drop in IV can decrease the value of the options, leading to a loss. This is why the price move must be substantial enough to overcome both the time decay (Theta) and the potential volatility crush (Vega loss).

> A successful event trade requires the realized volatility post-event to be greater than the implied volatility at the time of purchase.

A sophisticated trader will model the impact of a potential IV crush. For example, if the ETH price moves to $4,100 (a $600 profit on the call leg), but the post-event IV drops from 90% to 50%, the remaining time value of the option will plummet. The trader must calculate whether the intrinsic value gain ($600) is sufficient to offset the loss of extrinsic value from both Theta and Vega decay. This advanced modeling is a critical component of institutional execution.

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## References

- Carr, Peter, and Dilip Madan. “Option valuation using the fast Fourier transform.” _Journal of Computational Finance_, vol. 2, no. 4, 1999, pp. 61-73.

- Heston, Steven L. “A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options.” _The Review of Financial Studies_, vol. 6, no. 2, 1993, pp. 327-43.

- Hull, John C. _Options, Futures, and Other Derivatives_. 11th ed. Pearson, 2021.

- Figlewski, Stephen. “Options ▴ Arbitrage, Equilibrium, and Valuation.” _Handbooks in Operations Research and Management Science_, vol. 9, 1995, pp. 689-733.

- O’Hara, Maureen. _Market Microstructure Theory_. Blackwell Publishers, 1995.

- Cont, Rama, and Sasha Stoikov. “The cost of illiquidity.” _Risk Magazine_, vol. 18, no. 7, 2005, pp. 68-73.

- Black, Fischer, and Myron Scholes. “The Pricing of Options and Corporate Liabilities.” _Journal of Political Economy_, vol. 81, no. 3, 1973, pp. 637-54.

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## Reflection

The ability to structure a position around a known event like an Ethereum upgrade reveals the underlying architecture of a sophisticated trading operation. The strategies and execution mechanics discussed are components within a larger system of risk management and capital allocation. The true operational advantage is not found in a single successful trade, but in the repeatable, disciplined process of identifying an opportunity, architecting the appropriate structure, executing it with precision, and managing the resulting risk.

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## How Does This Capability Reshape a Portfolio?

Integrating event-driven options strategies transforms a portfolio from a passive holder of assets into an active manager of volatility and risk. It introduces a new dimension of potential returns that are uncorrelated with the simple directional movement of the market. Consider how this framework applies to other predictable events in the digital asset space ▴ major token unlocks, halving events, or regulatory decisions. Each represents a point of known future uncertainty, a node around which a volatility-based position can be constructed.

The ultimate question for any institutional participant is how to build an operational framework that can systematically exploit these opportunities. This involves an investment in technology for analytics and execution, access to deep and diverse liquidity pools, and the cultivation of human expertise to oversee the entire process. The framework itself becomes the enduring source of advantage, allowing the portfolio to express complex, high-conviction views on the market with precision and control.

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## Glossary

<a href="https://prime.greeks.live/area/crypto-options/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Crypto Options

Meaning ▴ Crypto Options are financial derivative contracts that provide the holder the right, but not the obligation, to buy or sell a specific cryptocurrency (the underlying asset) at a predetermined price (strike price) on or before a specified date (expiration date). </a><a href="https://prime.greeks.live/area/market-microstructure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Microstructure

Meaning ▴ Market Microstructure, within the cryptocurrency domain, refers to the intricate design, operational mechanics, and underlying rules governing the exchange of digital assets across various trading venues. </a><a href="https://prime.greeks.live/area/implied-volatility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Implied Volatility

Meaning ▴ Implied Volatility is a forward-looking metric that quantifies the market's collective expectation of the future price fluctuations of an underlying cryptocurrency, derived directly from the current market prices of its options contracts. </a><a href="https://prime.greeks.live/area/expiration-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Expiration Date

Meaning ▴ The Expiration Date, in the context of crypto options contracts, denotes the specific future date and time at which the option contract ceases to be valid and exercisable. </a><a href="https://prime.greeks.live/area/call-option/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Call Option

Meaning ▴ A Call Option is a financial derivative contract that grants the holder the contractual right, but critically, not the obligation, to purchase a specified quantity of an underlying cryptocurrency, such as Bitcoin or Ethereum, at a predetermined price, known as the strike price, on or before a designated expiration date. </a><a href="https://prime.greeks.live/area/put-option/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Put Option

Meaning ▴ A Put Option is a financial derivative contract that grants the holder the contractual right, but not the obligation, to sell a specified quantity of an underlying cryptocurrency, such as Bitcoin or Ethereum, at a predetermined price, known as the strike price, on or before a designated expiration date. </a><a href="https://prime.greeks.live/area/ethereum-upgrade/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Ethereum Upgrade

Meaning ▴ An Ethereum upgrade refers to a significant, coordinated change to the underlying protocol of the Ethereum blockchain network, implemented through hard forks or other network consensus mechanisms. </a><a href="https://prime.greeks.live/area/long-straddle/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Long Straddle

Meaning ▴ A Long Straddle is an advanced options trading strategy where an investor simultaneously purchases both a call option and a put option on the same underlying asset, with identical strike prices and expiration dates. </a><a href="https://prime.greeks.live/area/strike-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Strike Price

Meaning ▴ The strike price, in the context of crypto institutional options trading, denotes the specific, predetermined price at which the underlying cryptocurrency asset can be bought (for a call option) or sold (for a put option) upon the option's exercise, before or on its designated expiration date. </a><a href="https://prime.greeks.live/area/bull-call-spread/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Bull Call Spread

Meaning ▴ A Bull Call Spread is a vertical options strategy involving the simultaneous purchase of a call option at a specific strike price and the sale of another call option with the same expiration but a higher strike price, both on the same underlying asset. </a><a href="https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent, angular teal object with an embedded dark circular lens rests on a light surface. This visualizes an institutional-grade RFQ engine, enabling high-fidelity execution and precise price discovery for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-engine-high-fidelity-execution.jpg)

## Risk Management

Meaning ▴ Risk Management, within the cryptocurrency trading domain, encompasses the comprehensive process of identifying, assessing, monitoring, and mitigating the multifaceted financial, operational, and technological exposures inherent in digital asset markets. </a><a href="https://prime.greeks.live/area/request-for-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished, curved surfaces in teal, black, and beige delineate the intricate market microstructure of institutional digital asset derivatives. These distinct layers symbolize segregated liquidity pools, facilitating optimal RFQ protocol execution and high-fidelity execution, minimizing slippage for large block trades and enhancing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-protocol-execution-institutional-digital-asset-derivatives-flow.jpg)

## Request for Quote

Meaning ▴ A Request for Quote (RFQ), in the context of institutional crypto trading, is a formal process where a prospective buyer or seller of digital assets solicits price quotes from multiple liquidity providers or market makers simultaneously. </a><a href="https://prime.greeks.live/area/eth-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, dark teal surface contrasts with reflective black and an angular silver mechanism featuring a blue glow and button. This represents an institutional-grade RFQ platform for digital asset derivatives, embodying high-fidelity execution in market microstructure for block trades, optimizing capital efficiency via Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-platform-interface-optimizing-rfq-protocols-for-high-fidelity-execution-and-liquidity-aggregation.jpg)

## Eth Price

Meaning ▴ ETH Price refers to the current market value of one unit of Ether, the native cryptocurrency of the Ethereum blockchain, expressed in terms of fiat currency or other digital assets. </a><a href="https://prime.greeks.live/area/volatility-crush/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A modular institutional trading interface displays a precision trackball and granular controls on a teal execution module. Parallel surfaces symbolize layered market microstructure within a Principal's operational framework, enabling high-fidelity execution for digital asset derivatives via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-institutional-digital-asset-derivatives-rfq-protocol-controls.jpg)

## Volatility Crush

Meaning ▴ Volatility Crush refers to a rapid and significant decrease in the implied volatility of an options contract, often occurring after a highly anticipated event such as an earnings announcement, regulatory decision, or a major crypto network upgrade. </a>

**Tags:** [Volatility Crush](https://options.greeks.live/area/volatility-crush/), [Strike Price](https://options.greeks.live/area/strike-price/), [Long Straddle](https://options.greeks.live/area/long-straddle/), [Options Greeks](https://options.greeks.live/area/options-greeks/), [Derivatives Strategy](https://options.greeks.live/area/derivatives-strategy/), [Institutional Trading](https://options.greeks.live/area/institutional-trading/)	

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---

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```


---

**Original URL:** https://options.greeks.live/question/how-to-use-crypto-options-to-bet-on-ethereums-next-major-upgrade/
