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Building the crypto options market
April 2019
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Agenda
1 - Futures & Options: high level perspectives
2 - State of the bitcoin options market
3 - Current trends in crypto derivatives market
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Part 1 - Futures & Options: high level perspectives
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Bitcoin options market is relatively small
BTC Cash Market: $3bn daily volume
BTC Options Market:$10mln daily volume
Source: skew.com
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Traditional cash & option markets have similar sizes
AMZN US Equity:$11bn daily volume
AMZN US Options:$9bn daily volume
≃Source: research.investors.com, 2nd of November
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How big can it be?
S&P500 $500bln$5tn
VIX - vol as an asset class
Source: CBOE
Average Daily Volume Q1 2019Record Open Interest in Dec18
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Part 2 - State of the bitcoin options market
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Three platforms offer options on bitcoin, but only Deribit is liquid
Source: Deribit, LedgerX, Bitmex
A growing # of market makers
The state of the bitcoin options market
BTC Options Trading Platforms
Exchange FormatCash/Physical/Hyb
ridFiat/Cryptos Daily Volume Fees
Weeklies, Monthlies & Quarterlies Puts & Calls
Cash BTC/BTC $10mln MIN(12.5%*Premium;8bps)
Weekly Call Spreads and Put Spreads
Cash BTC/BTC $0.5-1mln B/O Spread
Day-ahead, Weeklies, Monthlies & Quarterlies Puts & Calls
Physical BTC/USD $0.2-0.5mln MIN(50%*Premium;$25)
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A crypto specificity: embedded deltas & convexity
Premium spent in bitcoin = involuntary delta hedging and counter intuitive breakevens!
Source: Deribit
Payoff settled in bitcoin = non linear payoffs! Is there some free optionality hidden somewhere?
More like a put option on the $ !
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Part 3 - Current trends in crypto derivatives market
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This week was the busiest of 2019
Source: skew.com Source: skew.com
Record Perpetual Swap Volumes Record Options Volumes on Deribit
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Healthy trading activity on Deribit
Source: skew.com Source: skew.com
Options total open interest is structurally growing Trading is focused on quarterly expiries
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A structural decline in volatility?
Source: skew.com Source: skew.com
The rise of derivatives will contribute to stability Implied volatility has been declining all year
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The shape of the curve will evolve as options market matures
Source: skew.com Source: skew.com
Our money is on steep term structure, low vol and high skew Probabilities: an easy way to look at options prices
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Low vol environment: keep an eye on the wings!
Source: Deribit
On which side do you want to be in the June 4k 7k 1 by 10 call ratio? (costless)
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Seasonality: don’t write off London & Amsterdam too quickly!
Most of Bitmex trading happens on European hours!
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DeFi: keep an eye on Maker, it’s already real!
Source: skew.com Source: skew.com
2mln ether + / $300mln in collateral Margin trading on the blockchain!
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Disclaimer
This presentation is a property of Skew Ltd and is intended for informational purposes only. The views expressed herein are not and should not be construed as legal or investment advice or recommendations. Investors should do their own due diligence, with consideration given to their specific financial circumstances, investment objectives, and risk tolerance before investing. The individuals contributing to this presentation have positions in some or all of the assets discussed. This presentation is neither an offer, nor the solicitation of an offer, to buy or sell any of the assets mentioned herein.
Contacts
E-mail: [email protected]: www.skew.com
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