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Net buying pressure and the information in bitcoin option trades

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  • Alexander, Carol
  • Deng, Jun
  • Feng, Jianfen
  • Wan, Huning

Abstract

Bitcoin prices are driven by upward as well as downward jumps and so the bitcoin implied volatility surface behaves differently from those of established options markets. We analyze tick-level Deribit option price data, demonstrating increasing support for the limits-to-arbitrage hypothesis. Hence market makers are managing order imbalance and inventory more effectively as Deribit bitcoin options trading volumes increases. On the demand side, volatility traders drive both at-the-money and out-of-the-money option prices, the latter also being driven by directional traders. Directional effects were most pronounced during the price bubble of 2021. Further refinements of our tests assess time-to-maturity and time-of-day effects.

Suggested Citation

  • Alexander, Carol & Deng, Jun & Feng, Jianfen & Wan, Huning, 2023. "Net buying pressure and the information in bitcoin option trades," Journal of Financial Markets, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finmar:v:63:y:2023:i:c:s1386418122000544
    DOI: 10.1016/j.finmar.2022.100764
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    References listed on IDEAS

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    More about this item

    Keywords

    Deribit options; Sophisticated traders; Market makers; Volatility information; Directional information;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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