Define ‘Implied Volatility’ in Options Trading.
Implied volatility (IV) is the market's expectation of the future volatility of the underlying asset's price, derived from the current price of the option. It is a key input in option pricing models like Black-Scholes.
Unlike historical volatility, IV is forward-looking and reflects all market factors, including perceived risk and uncertainty. Higher IV means a higher option premium.
Glossar
Perceived Risk
Definition ⎊ Perceived risk refers to the subjective assessment of potential losses or negative outcomes by market participants, which may differ significantly from objective, statistically calculated risk metrics.
Future Volatility
Horizon ⎊ The anticipated fluctuation in cryptocurrency asset pricing, particularly within derivative instruments, represents a critical element of risk management and strategic trading.
Option Pricing Models
Framework ⎊ Option Pricing Models are mathematical constructs, such as the Black-Scholes or binomial models adapted for crypto, used to calculate the theoretical fair value of an option based on several key inputs.
Vega
Sensitivity ⎊ Vega, within the context of cryptocurrency options and financial derivatives, quantifies the rate of change in an option’s price with respect to changes in the underlying asset’s implied volatility.
Forward-Looking
Horizon ⎊ The concept of "forward-looking" within cryptocurrency derivatives, options trading, and financial derivatives fundamentally concerns the incorporation of anticipated future conditions into present valuation and risk management strategies.