Illiquid bitcoin options

This paper conducts a first look into the regulated Bitcoin options market in the United States. We find bitcoin options to be ten times more illiquid than stock options, as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are on average net sellers of bitcoin options, heightened illiquidity is associated with a significant premium in subsequent delta-hedged returns, and the premium attenuates under more balanced investor orders. We further confirm the findings by exploiting a policy change that allows retail participation in the Bitcoin options market which significantly changes order imbalances