Can MEV Extraction Impact the Pricing of Crypto Options Contracts?

Yes, MEV extraction can indirectly impact the pricing of crypto options contracts by affecting the underlying asset's price and market volatility. Front-running and sandwich attacks can cause small, rapid, and predictable price fluctuations on the spot market.

These fluctuations, especially if frequent, can influence the implied volatility used in options pricing models like Black-Scholes. Furthermore, if a large trade that would hedge or execute an options strategy is front-run, the resulting suboptimal execution price impacts the profitability and risk management of the options trader.