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arXiv · 2109.02776

Net Buying Pressure and the Information in Bitcoin Option Trades

Carol Alexander·Jun Deng·Jianfen Feng·Huning Wan
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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.

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Carol Alexander, Jun Deng, Jianfen Feng, Huning Wan. 2021-09-06. Net Buying Pressure and the Information in Bitcoin Option Trades. https://arxiv.org/abs/2109.02776

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