1/ I wanted to do something a little different, so today @mtrl_scientist is going to share his recent findings on the Binance options market with us. π§΅
Grab some coffee, this one is really good!π
Grab some coffee, this one is really good!π
2/ Binance Options Analysis by @Mtrl_Scientist
After following the Gamestop saga late last year, Iβve realized how much options can move the underlying in traditional markets.
After following the Gamestop saga late last year, Iβve realized how much options can move the underlying in traditional markets.
3/ So, Iβve set out to understand them more within the cryptocurrency context with the goal of eventually applying the gained insights for trading.
4/ Earlier this year, Binance made an API available for interacting with their βVanilla Optionsβ (European-Style Options), which was a good place for me to start.
5/ Lily Francus (@nope_its_lily) had shown with her NOPE model that the options flow was a good metric for mean reversion. So, Iβve also decided to look at the flow of options.
6/ The following chart shows the options orderflow for the upcoming September end-of-month (EOM) expiry for put-type options. The upper panelβs x-axis is the date of when the trades occurred, the y-axis is the strike price at which the trades occurred,
7/ and the color is the cumulative-volume-delta (CVD) denominated in the base-currency (number of contracts, rather than premium spent). Blue shows that there were more market-sold options, while red shows that there were more market-bought options.
8/ The bottom panel shows the date on the x-axis, and the CVD on the y-axis. It represents the net CVD across all strike prices for the top panel.
9/ So, you can see that puts were bought just before the dip in mid-August, and sold until early September, after which put buying picked up again. In particular, you can see that puts were sold for strikes 40k and below, while they were bought for strikes 44k and above.
10/ So, bullish below 40k, and bearish above 44k.
11/ But that was not enough, as you can also trade options for other expiries that are farther in the future. So, I also combined the orderflow for all expiries in the following charts:
12/ Chart 2:
13/ The first one shows the total CVD (number of contracts) for all (at the time) active expiries for the call-type options, while the 2nd one shows the same for the put-type options.
14/ Look at July, and note how there was a lot of call buying from 30k β mid-40k (call-selling at 50k), implying bullishness from 30k to mid-40k, and bearishness beyond 50k (which is how it played out).
15/ As for puts, we see something similar: put-selling below 40k. This made it very easy to be confidently bullish as tweeted in late July:
16/ Apart from the base-unit CVD, I had also looked at the total premium spent (meaning CVD in USDT) per strike price for all expiries and both option types:
17/ This chart shows the total volume (premium spent, i.e. amount of USDT) at each strike price for both option types, and for (at the time) active expiries. As you can see, high-volume areas (bright spots) tend to draw price towards them.
18/ Thus, Iβve also calculated the average strike price according to how much volume was at each level, giving us the VWAP (green line). The VWAP drew price to 30k, when we were still at 50k, it drew price to 40k, when we were still at 30k, drew it back to 30k,
19/ when we were still at 40k, drew it to 50k, when we were still at 30k, and very recently, drew price to 40k, when we were still at 50k.
20/ Finally, under the assumption that a put is just a negative call, Iβve also combined the total orderflow for all expiries, and all option types to reduce the data to a single chart:
21/ So, from July through August there was a lot of call buying and/or put selling from 30k to mid-40k, and call selling and/or put buying at 50k and beyond. Just before the sell-off, there was still call buying,
22/ and/or put selling from 30k β 40k, and call selling and/or put buying at 44k and above.
23/ That, and the VWAP suggested weβd drop from 50k to 40k (which eventually happened), as tweeted here:
24/ So, despite Binance being much smaller than Deribit in terms of options volume, and therefore having very little impact on the market, the platformβs traders seem to make good trades, which can be used to make successful bets on the direction of the underlying asset.
25/ That, and more, will be available in our upcoming dashboard upgrade:
Like I've said before, my boy is Wicked Smaht! I'm sure you already follow him, but if not check him out here.
@Mtrl_Scientist
@MI_Algos
Like I've said before, my boy is Wicked Smaht! I'm sure you already follow him, but if not check him out here.
@Mtrl_Scientist
@MI_Algos
Do you guys have any thoughts?
@Tristan0x @macrohedged @laevitas1 @MrBenLilly @samchepal @PowerTradeHQ @PelionCap @tztokchad @dopex_io @ZetaMarkets @TraderSkew
@Tristan0x @macrohedged @laevitas1 @MrBenLilly @samchepal @PowerTradeHQ @PelionCap @tztokchad @dopex_io @ZetaMarkets @TraderSkew
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