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Net buying pressure and the information in bitcoin option trades

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journal contribution
posted on 2023-06-07, 07:56 authored by Carol AlexanderCarol Alexander, Jun Deng, Jianfen Feng, Huning Wan
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Financial Markets

ISSN

1386-4181

Publisher

Elsevier

Article number

a100764

Department affiliated with

  • Accounting and Finance Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2022-07-26

First Open Access (FOA) Date

2022-07-27

First Compliant Deposit (FCD) Date

2022-07-26

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