The rapid growth of digital currency options trading on Deribit over the past year has sparked interest in understanding these financial instruments. This article provides an overview of past and current options trading products, highlighting key structural differences and market dynamics.
Key Characteristics of Options Markets
Options markets differ fundamentally from linear derivatives. Below are four critical aspects that define their unique structure:
- Two-Sided Nature: The ability to both buy and sell the same option contract.
- Central Limit Order Book: Transparent order matching where bids/asks are publicly visible.
- Portfolio Margin Systems: Risk-based collateral offsets for hedged positions across options/futures.
- Block Trade Reporting: Essential for institutional-scale OTC transactions.
Note: CME/Bakkt aren't covered due to prohibitive USD capital requirements for most traders.
Historical Options Platforms
MPOE (Mircea Popescu Options Emporium)
- Era: 2012-2013
- Innovation: Early BTC options with algorithmic market making
- Risk: Unhedged "naked" call options exposed sellers to catastrophic losses if BTC prices surged (e.g., $10 → $100)
- Credit Concerns: Buyers bore counterparty risk without insurance or default protections
BitMEX UP/DOWN Contracts (2018-2020)
Flaws:
- Only allowed buying (no short selling)
- Single "anchor market maker" created monopoly pricing
- Premiums reached 10x Deribit's rates due to lack of competition
Current Exchange Offerings
OKEx
| Feature | Limitation |
|---|---|
| Clone of Deribit | No portfolio margining |
| Active futures | No cross-product margin offsets |
Impact:
- Reduced capital efficiency for market makers
- Forces over-collateralization on hedged positions
- Higher implied volatility compensates for added risk
FTX RFQ Model
Pros:
- Custom expiration dates
- Large-size quote availability
Cons:
- OTC-style lacks visible order flow
- Non-continuous pricing obscures spread consistency
Strategic Recommendations
👉 Compare options pricing across exchanges before executing volatility-based strategies. Consider these factors:
- OKEx: Better for sellers tolerating higher collateral requirements
- FTX: Ideal for customized expirations using existing collateral
- Deribit: Best for dynamic hedging with BTC/ETH options + futures
FAQ
Q: Why is portfolio margining crucial?
A: It allows offsetting risk across positions, reducing capital needs by up to 90% versus isolated margins.
Q: How do RFQ platforms differ from order books?
A: RFQs provide on-demand pricing but lack transparency in live market depth.
Q: What killed BitMEX's options market?
A: Restrictive design preventing short sales created artificial illiquidity.
Q: Can retail traders access CME options?
A: Yes, but $50,000+ account minimums make them impractical for most.
👉 Explore advanced options strategies with real-world case studies.