Does the Liquidity of the Underlying Crypto Asset Affect the Prevalence of American Options in OTC Markets? ▴ Learn

Does the Liquidity of the Underlying Crypto Asset Affect the Prevalence of American Options in OTC Markets?

Yes, the liquidity of the underlying asset significantly affects the prevalence. Options on highly liquid assets like Bitcoin and Ethereum are more common because hedging and settlement are easier.

For illiquid crypto assets, the risk of early exercise is harder to manage for the writer, making American-style options less common or significantly more expensive.

Why Are European Options Typically Less Expensive than American Options?

Why Are STOs Considered Less Risky for Investors than ICOs?

How Does the Early Exercise Feature of American Options Affect Their Pricing Relative to European Options?

How Does Early Exercise Affect the Pricing Model for American Options?