Crypto options arbitrage: when one bid beats another's ask

Now and then, buyers on one exchange bid more for an option than sellers on another ask. Buy it at the ask on one, sell it at the bid on the other, hold both to expiry, and the gap is yours, less the fees. On bitcoin's and ether's futures and options pages, Options priced apart looks for that among every option Deribit by Coinbase and OKX both list.

What does crossed mean between two exchanges?

On one exchange the best bid, the most a buyer will pay, is always under the best ask, the least a seller will take, or the two would have traded. Across two exchanges nothing makes them meet. When one's best bid is above the other's best ask, they're crossed, and the site's option chain tags the strike Crossed (how to read an option chain). The chain compares volatility on all three exchanges; Options priced apart compares prices, on the two that list the same contract, where a cross can be traded.

Why Deribit by Coinbase and OKX?

They list the same option: struck in dollars, priced and settled in the coin at 08:00 UTC on the expiry date, each against its own index. Hold one bought on one exchange and one sold on the other, and at expiry what the first pays is, near enough, what the second costs. If it expires worthless, neither pays. Either way the gap you traded at stays.

Bybit's options are struck, priced and settled in tether on its own index, so a gap against them can't be locked in this way (coin-settled vs tether options). The site compares those in volatility, the points apart times the option's vega giving roughly what the gap is worth if tether holds (vega explained), and lists them apart, marked as not locked in.

What would you do, and what's left?

Buy at the ask on one exchange and sell at the bid on the other, the same number of coins on each, then hold both to expiry. What's left is the gap less both taker fees, each at the exchange's standard rate: a share of the coin's index, capped at a share of the option's price, so on a cheap option you pay the cap. Both legs are priced in the coin, so what's left is bitcoin or ether, written in dollars at the index; its worth moves with the coin.

Why don't most crosses pay?

Most crosses are a single tick, the smallest step an option's price moves by, and on most options both fees come to more than that. The exception is a cheap option, far out of the money or close to expiry. Priced at a tick or two, its fees are capped at a share of that small price, and can come to less than the tick. So the rows closest to paying are usually cheap options with days or hours to go.

How much is on offer?

A cross holds only for what's on offer at both prices: the coins at one exchange's ask or the other's bid, whichever is fewer. Past that, each book's next price is worse. On offer shows the lesser of the two, and Work it out starts there.

Why does a cross rarely last?

Prices are read from both exchanges every minute, so they can be a minute old, and the list says how old. A one-tick gap is usually closed within seconds, so one on screen has often gone: check both books on the exchanges before you trade, for as much as you want.

What the figures leave out

• The selling leg holds margin on its exchange until expiry, and a big move can call for more. If it's closed for want of it, nothing is locked in.
• Fees to settle aren't counted: an option that expires in the money pays one on each exchange.
• The two indices can settle a few dollars apart, so in the money, what one pays and the other takes can differ by that much a coin.
• Closing early means crossing each book's spread again.

An example, worked through

Say a cheap put with half a day to go is crossed by a tick, with 2 coins on offer at both prices. Example figures, not market data:

A tick is a big share of an option this cheap: B's bid is twice A's ask. Both fees, capped by price, come to $2.70 a coin, leaving $5.40, or $10.80 on 2 coins. On an option priced in the hundreds of dollars neither fee would be capped, together they'd be more than $8.10, and the same tick would lose money.

How to read the list on the site

1. Open Bitcoin's page or Ethereum's: Options priced apart is under the chain. Folded, it names the option closest to paying, where to Buy it and where to Sell it; Crossed counts the options listed on both that are crossed, and Best after fees is the best, a coin.
2. See every one opens the list, closest to paying first, with Expiry and Calls or puts to narrow it and the prices' age beside Include taker fees.
3. Each row: Option, Buy at the ask and Sell at the bid (each price with its volatility), Apart, a coin, Both fees, After fees and On offer.
4. Work it out opens the row for an amount: Apart now, Both fees, Net after fees and when it Settles.
5. Against Bybit, in tether, under the rows, lists the crosses in volatility.

Where to find it

On Bitcoin's and Ethereum's futures and options pages, under Options by strike. Further down, the options trade simulator walks each exchange's book for one option, and says whether Deribit by Coinbase's and OKX's best prices cross on it. For a gap locked in on dated futures, see the futures spread trade, under Futures by expiry. Each exchange's options have their own page, Deribit by Coinbase's and OKX's; the options scoreboard ranks them, and the futures and options index lists every coin.

Not financial advice. Prices move while you read them.