How Do Market Makers Determine Which Strike Prices to Offer?
Market makers are financial institutions that provide liquidity to the options market. They do this by quoting both a bid price and an ask price for a particular option.
The strike prices that they offer are determined by a number of factors, including the price of the underlying asset, the implied volatility of the market, and the demand from traders. They will typically offer a range of strike prices that are both in-the-money and out-of-the-money.
Glossar
Strike Prices
Definition ⎊ Strike Prices represent the fixed price at which the holder of an option contract has the right, but not the obligation, to buy or sell the underlying cryptocurrency asset upon exercise.
Market Maker
Genesis ⎊ The concept of a market maker within cryptocurrency derivatives, options trading, and broader financial derivatives fundamentally addresses liquidity provision and price discovery.
Market Makers
Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.
Financial Institutions
Intermediation ⎊ Financial institutions, within the cryptocurrency, options, and derivatives landscape, function as critical intermediaries facilitating access to complex financial products and markets for a broader investor base.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.