3. Analysis
We looked at the cumulated traded volume for all option contracts in the dataset as a function of our Strike and Time moneyness. As expected we notice that options scoring high for both measures display high volumes (top right corner on the graph below with cumulated volumes above 6,000 Bitcoin)
We then looked at our combined measure to try to identify specific data points:
As expected, the bottom part of the graph (options with low to no volume reported) concentrates the biggest share of all contracts traded as we had noticed when looking at the cohort sizes (contracts with less than 500 BTC traded over the year representing 61% of the population). On the other hand, the few outliers with high volume also feature high Combined Moneyness (top right quadrant). In particular we find our three most traded contracts (Dec 7500 Call, Dec 7000 Put and Dec 6000 Put) in this area.
Despite showing a clear trend, we still notice that we have a sizable population of options with high Combined Moneyness and low traded volume (bottom right quadrant). We looked at the top 20 contracts ranked by our Combined Moneyness Measure:
We made the following observations:
- A few contracts with January 3rd, 2020 expiry date (in red) have the highest combined moneyness measure but low traded volumes. We can assume that this is due to the preference to trade quarterly expiries (as already seen for futures)
- A similar observation can be made for Dec 20th, 2019 contracts (in green)
- Finally, we see a few contracts clearly In the Money (options likely to be exercised) close to the expiry date (Dec 27 2019 8,250 Put, 8,500 Put and 8,750 Put) (in blue). This shows that when having the choice between two instruments (call and put) with the same strikes and maturity, there will be more volume traded on the Out of the Money one as regularly observed on developed financial markets.
In our previous article we noticed steady trading volumes for Deribit Bitcoin options in 2019 with a wide distribution of volumes among the many listed contracts. From our initial look at the data we noticed that the few contracts with the highest traded volumes tended to be short dated ‘At the Money’ options.
In this follow-up article we decided to test this assumption by defining a measure for Moneyness (both Strike and Time) and looking at trade volumes as a function of our Combined Measure.
We found that:
- Options with the highest traded volumes showed high levels of Moneyness (as per our defined measure) but options with a high measure for Moneyness did not necessarily have a high traded volume.
- There is a clear trading preference for quarterly expiries options (as we already noticed for futures).
- When looking at Calls and Puts with identical strikes and maturities, the ‘Out of the Money’ options have higher traded volume than their ‘In the Money’ counterparts, which is expected in developed markets.
