Net Buying Pressure and the Information in Bitcoin Option Trades

35 Pages Posted: 4 Oct 2021 Last revised: 22 Apr 2022

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School; Peking University HSBC Business School

Jun Deng

University of International Business and Economics (UIBE) - School of Banking and Finance

Jianfen Feng

University of International Business and Economics (UIBE) - School of Banking and Finance

Huning Wan

University of International Business and Economics (UIBE)

Date Written: March 25, 2022

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 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

Alexander, Carol and Deng, Jun and Feng, Jianfen and Wan, Huning, Net Buying Pressure and the Information in Bitcoin Option Trades (March 25, 2022). Available at SSRN: https://ssrn.com/abstract=3915901 or http://dx.doi.org/10.2139/ssrn.3915901

Carol Alexander

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.coalexander.com

Peking University HSBC Business School ( email )

Jun Deng (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Jianfen Feng

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Huning Wan

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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