September 1, 2023
Crypto options trading has skyrocketed over recent years. If you plan to trade crypto options, it's important that you understand key metrics like options volume and open interest. Today, we’ll look at the interrelation between volume and open interest, how to analyze them for your trading decisions, and how Amberdata's data and analytics can help you.
Analyzing Crypto Volume and Open Interest for Investment Decisions
Volume and open interest are two key trading/investing metrics. You can use them together to better spot market trends and to inform your trading and investing.
What is Crypto Options Trade Volume?
Options trading volume is the total amount of a crypto’s options traded in the market over a specific period. It is an important fundamental crypto analysis metric; it helps determine the buying and selling activity and interest in that crypto. High trading volume indicates strong market activity and overall health of an asset. It also indicates high liquidity, which means you should be able to get in or out of a position reasonably easily and with little slippage.
What is Crypto Options Open Interest?
Crypto options open interest tracks the total number of open (or outstanding) positions — contracts currently held by traders and investors — in a particular instrument, such as a Bitcoin put option. As such, it is a barometer of market activity and provides many insights.
By analyzing open interest, you can assess the strength of the market and make better-informed trading decisions. For instance, high open interest can indicate strong market participation and potential for price movements, while low open interest may signal a lack of market interest or activity.
How Volume and Open Interest Complement Each Other
In combination, these two metrics provide a full view of market sentiment and price movements. By monitoring volume trends and changes in open interest, you can assess the strength of the market and identify potential trend reversals or continuations. For example, increasing volume and open interest may indicate a strong market trend, while decreasing volume and open interest could signal a weakening trend or potential reversal.
Impact on Market Trends
Crypto options volume and open interest can have a significant impact on market trends. High trading volume often accompanies significant price changes, indicating strong market sentiment in the direction of the change. On the other hand, changes in open interest can indicate potential trend reversals or continuations. Understanding the interplay between crypto volume and open interest can enable you to better anticipate evolving market trends.
Predictive Power of Volume and Open Interest
General Predictive Signals
Understood properly, options trading volume and open interest can provide predictive market signals such as the following:
Market sentiment: High trading volume often comes on big moves (in many cases based on news of one sort or another) and demonstrates strong market sentiment in the direction of the move. High open interest indicates strong market participation and interest, which can either be bullish or bearish, but suggests continuing movement in the same direction.
Liquidity: High trading volume indicates strong liquidity, market activity, and overall health of the crypto. The same is true for high open interest.
Trend strength: High trading volume and high open interest suggest that the current market trend driving the underlying price is strong, meaning there's investor confidence that the trend will continue. These trends can be bullish or bearish, and high volume indicates that they are likely to persist.
Trend reversals: Decreasing volume in an uptrend may signal a weakening trend or potential reversal. Changes in open interest can indicate that a trend is running out of steam.
More Specific Predictive Signals
Here are some more specific examples of volume and open interest combined activity, and possible interpretations.
- When prices fall during a downtrend and open interest declines, it could suggest that holders are being forced to liquidate their positions, which is bearish. It can also hint that a selling climax is approaching.
- If there is a high level of open interest while prices drop sharply during a market top, it can signal that traders who bought near the top are now in the red and can lead to heavy selling.
- When prices rise during an uptrend and open interest also increases, it may suggest that new money is entering the market. This is bullish if the growth in open interest is driven by long positions. Conversely, if open interest declines while prices rise during an uptrend, it implies that money is leaving the market, which is bearish.
- During a downtrend, if prices fall while open interest increases, it can indicate that new money is entering the market on the short side; this is bearish and usually leads to a continuing downtrend.
How Can Amberdata Help You Track Options Volume and Open Interest?
Amberdata provides comprehensive data and analytics on crypto options trading and open interest. Our data and analytics uncover valuable insights in the crypto options market. If you’re a trader, they can help you make informed investment decisions. If you’re managing a trading firm, they can help you assess the potential benefits of incorporating crypto options trading and analytics data into your company's offerings.
Amberdata offers various tools and resources for analyzing volume and open interest in crypto trading. Some of the options and derivatives tools we offer are:
Derivatives: We provide spot, volume, and derivatives data history, along with a full complement of analytics and tools that help you identify opportunities, manage risk, and build better strategies, as well as monitor trade flow and changes in open interest.
Crypto Market Data: We offer live and historical price data, reference data, and more. All the data you need for research, trading, risk management, and compliance. See here for more ways to use our data to improve your investment strategies.
Open Interest Volume and Change: We provide API endpoints that cover open interest, volume, and turnover metrics across different instruments in crypto derivatives trading. These endpoints offer various ways to analyze open interest and volume, including views on a global scale, broken down by put and call options, specific instrument names, strike prices, and more.
Derivatives Analytics UI: Our institutional-grade options analytics tools, and data sets have been built on years of deep trading expertise. You can access a vast repository of live and historical crypto options data and leverage years of historical volatility surfaces like strikes and moneyness. Our customizable analytics UI tools allow you to visualize data and trends. For more, see here.
Amberdata’s unified API and data services provide a single integration point for obtaining a complete view of the entire cryptoeconomy and options trading. We deliver comprehensive digital asset data and insights into blockchain networks, crypto markets, and decentralized finance, empowering financial institutions with critical market and DeFi data for research, trading and analytics, risk management, derivatives analytics , and compliance.
To learn more about Amberdata, please contact us to book a demo, hear more about how our products can help your business, or receive pricing information.
