Net buying pressure and the information in bitcoin option trades

Carol Alexander, Jun Deng, Jianfen Feng and Huning Wan

Journal of Financial Markets, 2023, vol. 63, issue C

Abstract: Bitcoin prices are driven by upward as well as downward jumps and so the bitcoin implied volatility surface behaves differently from those of established options markets. We analyze tick-level Deribit option price data, demonstrating increasing support for the limits-to-arbitrage hypothesis. Hence market makers are managing order imbalance and inventory more effectively as Deribit bitcoin options trading volumes increases. On the demand side, volatility traders drive both at-the-money and out-of-the-money option prices, the latter also being driven by directional traders. Directional effects were most pronounced during the price bubble of 2021. Further refinements of our tests assess time-to-maturity and time-of-day effects.

Keywords: Deribit options; Sophisticated traders; Market makers; Volatility information; Directional information (search for similar items in EconPapers)
JEL-codes: G11 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Working Paper: Net Buying Pressure and the Information in Bitcoin Option Trades (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:63:y:2023:i:c:s1386418122000544

DOI: 10.1016/j.finmar.2022.100764

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