Why Are Standardized Options Contracts More Liquid than Customized OTC Options?
Standardized options are listed on exchanges, have fixed terms, and are cleared by a CCP, which fosters broad market participation. Their fungibility allows any buyer to sell to any seller easily.
OTC options, being bespoke, require finding a specific counterparty willing to take the exact opposite position, severely limiting the pool of potential traders and reducing liquidity.
Glossar
Liquid
Volatility ⎊ Liquidity, within cryptocurrency derivatives, represents the ease with which a position can be established or exited at prevailing market prices, directly impacting bid-ask spreads and order book depth.
Standardized Options Contracts
Specification ⎊ Standardized Options Contracts are derivative instruments where the key terms, including the underlying asset, contract size, expiration date, and strike price increments, are uniformly fixed by the issuing exchange.
Standardized Options
Structure ⎊ Standardized options, within cryptocurrency derivatives, represent contracts conforming to pre-defined specifications established by an exchange or clearinghouse, facilitating liquidity and reducing counterparty risk.