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Net Buying Pressure and the Information in Bitcoin Option Trades

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

Abstract

How do supply and demand from informed traders drive market prices of bitcoin options? Deribit options tick-level data supports the limits-to-arbitrage hypothesis about the market maker's supply. The main demand-side effects are that at-the-money option prices are largely driven by volatility traders and out-of-the-money options are simultaneously driven by volatility traders and those with proprietary information about the direction of future bitcoin price movements. The demand-side trading results contrast with prior studies on established options markets in the US and Asia, but we also show that Deribit is rapidly evolving into a more efficient channel for aggregating information from informed traders.

Suggested Citation

  • Carol Alexander & Jun Deng & Jianfen Feng & Huning Wan, 2021. "Net Buying Pressure and the Information in Bitcoin Option Trades," Papers 2109.02776, arXiv.org, revised Mar 2022.
    • Handle: RePEc:arx:papers:2109.02776
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    References listed on IDEAS

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    Cited by:

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    2. Maik Schmeling & Andreas Schrimpf & Karamfil Todorov, 2023. "Crypto carry," BIS Working Papers 1087, Bank for International Settlements.

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