Net Buying Pressure and the Information in Bitcoin Option Trades
35 Pages Posted: 4 Oct 2021 Last revised: 22 Apr 2022
Date Written: March 25, 2022
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 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.
Keywords: Deribit options; Informed traders; Market makers; Volatility information; Directional information;
JEL Classification: G32; G11
Suggested Citation: Suggested Citation