Derivative contracts on ether are more popular than ever, as evidenced by record open positions in options listed on the Panama-based derivatives exchange Deribit.

Open interest, or the number of contracts outstanding and not yet liquidated by an offsetting trade, rose to a record high of $136 million on Monday, marking a 460% increase from $24 million seen on March 24, according to data provided by crypto derivatives research firm Skew.

In ETH terms, there were 547,000 option contracts open on Monday, a record high. Meanwhile. daily trading volume rose to a new lifetime high of $24 million on Monday, surpassing the previous record of $20 million reached two days before.

“We see increased interest in ETH options due to price performance since mid-March, [with] new firms entering the options space,” said Luuk Strijers, COO at Deribit.

Also read: Ether Leads Bitcoin on Price as Investors Prepare for Staking Arrival

Ether’s price rose by 55% and 12% in April and May, respectively, and was trading near $240 on Monday, representing a solid 166% gain from its March low of $90, according to CoinDesk’s data. The sharp rally looks to have revived institutional interest in ether’s options, which evaporated during March’s price crash. 

Apart from the price rise, observers credit the upcoming transition from Ethereum’s proof-of-stake mechanism to proof-of-work mechanism, dubbed Ethereum 2.0, for boosting activity in options. 

“We also see an increase in over-the-counter (OTC) interest, resulting in dealers hedging on Deribit, possibly related to a shift in investor interest into ETH post-[Bitcoin] halving and with the upcoming ETH 2.0 launch,” said Strijers. 

When an investor buys structured products over the counter, the dealer often hedges the exposure, at least partially, by buying or selling call or put options on exchanges. As a result, exchanges often register an increase in activity with the uptick in demand for OTC products. A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. Meanwhile, a put option represents a right to sell.

Ethereum’s switch to a staking model would allow ETH investors to earn a yield on their holdings. The prospect of earning extra ethers in return for holding existing coins in wallets to support the operations on a blockchain is already drawing investors to the second-largest cryptocurrency by market value. 

Ether’s price has gained a lead over bitcoin in the past few days. While bitcoin rallied by 8% last week, ether was up by over 15%, according to CoinDesk data. 

The search for yield is also one of the main reasons for the growth in the crypto options market, according to Darius Sit, managing partner at Singapore-based QCP Capital. “More people are starting to realise the unique opportunity in crypto options for outsized returns and high yields with relatively low risk (if properly managed),” said Sit.

Crypto investors often lend their holdings to centralized exchanges and lending platforms for a fixed return. However, doing so takes up a significant amount of credit risk from their loans being hypothecated - a practice whereby banks and brokers use, for their own purposes, assets that have been posted as collateral by their clients.

“Capital is now beginning to shift away from lending and into options,” said Sit while adding that “this pattern would continue, especially with the negative interest rate environment across the globe.”

Key option market metrics suggest investors are bullish on ether. 

The put-call open interest ratio, which measures the number of put options open relative to calls, rose to a nine-month high of 0.93 on May 28, after having bottomed out at 0.40 in mid-March. 

The uptick does not necessarily represent a build up of long put positions. In fact, the one-month put-call, which measures the price of puts relative to that of calls for options expiring in one month, is currently at -5.8%. The three-month and six-month gauges are also printing negative values. 

The negative numbers indicate that put options are cheaper than calls. To put it another way, investors are looking to  sell, or “write” puts, which is usually done when the market is expected to rise or trade in a sideways manner. 

Increased interest in ether derivatives aren’t limited to options on Deribit. Ether futures listed on major exchanges - BitMEX, FTX, Deribit, Kraken, OKEx, Bitfinex, Huobi, Bybit, Binance - have witnessed solid growth over the past two months alongside an uptick in prices and growth in the options market. 

The aggregate daily open interest rose to $753 million on May 30 to hit the highest level since early March. As of Sunday, open interest was $740 million, up more than 100% from March lows. 

See also: BitMEX Sees Biggest Short Squeeze in 8 Months After Bitcoin Surge

Disclosure: The author holds no cryptocurrency at the time of writing.