Illiquid Bitcoin Options

52 Pages Posted: 18 Jul 2022

See all articles by Yang Guo

Yang Guo

Tsinghua University

Jiasun Li

George Mason University - Department of Finance

Mei Luo

Tsinghua University - School of Economics & Management

Yintian Wang

Tsinghua University

Date Written: July 15, 2022

Abstract

This paper conducts a first look into the regulated Bitcoin options market in the United States. Compared to stock options, bitcoin options tend to be ten times more illiquid as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are on average net sellers of bitcoin options, heightened illiquidity is associated with a significant premium in subsequent delta-hedged returns, which also strengthens under more imbalanced investor orders. To support the reasonings behind our findings, we further exploit a policy change that allows retail participation and significantly influences order imbalances in the Bitcoin options market.

Keywords: Bitcoin, Options, Liquidity

Suggested Citation

Guo, Yang and Li, Jiasun and Luo, Mei and Wang, Yintian, Illiquid Bitcoin Options (July 15, 2022). Available at SSRN: https://ssrn.com/abstract=4149934 or http://dx.doi.org/10.2139/ssrn.4149934

Yang Guo

Tsinghua University ( email )

Beijing, 100084
China

Jiasun Li (Contact Author)

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/view/jiasunli

Mei Luo

Tsinghua University - School of Economics & Management ( email )

Weilun Building 201B
School of Economics and Management
Beijing, Beijing 100084
China
8610-62773185 (Phone)

Yintian Wang

Tsinghua University ( email )

Beijing, 100084
China

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