Jul 10, 2018

Bitcoin Volatility, Skew, and Options Pricing, Part 2

The market for BTCUSD options is not a recent phenomenon. There were several "startup" exchanges offering options since shortly after Bitcoin itself rose in popularity. Most them failed in contract design, particularly in their design of handling margining of short option positions, or failing to design decent interface to attract traders, or getting active market makers to provide liquidity. To digress, in my experience most of the cryptocurrency exchanges appear to be designed and operated by web-developers, with no knowledge of how modern financial exchanges work.

Anyway, there is one leading exchange for trading cryptocurrency options - Deribit , and several runner-ups. LedgerX is CFTC registered exchange based in the USA, unfortunately liquidity is at this time is quite low. Their contracts are large, aimed at institutional traders, and trading is somewhat sporadic. Bitmex, a leading futures exchange recently introduced a very poorly designed options contract; liquidity is non-existent. Quedex is another options-focused platform, but I cannot find any volume figures or statistics.

As I mentioned above, only Deribit offers robust liquidity at this time; in the next blog post I will explore bitcoin options pricing and trading strategies.

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