Explain the Concept of “Volatility Skew” in Crypto Options.
Volatility skew is the phenomenon where options with different strike prices but the same expiration date have different implied volatilities. In crypto, the typical skew is a "put skew," meaning out-of-the-money (OTM) put options have higher implied volatility than at-the-money (ATM) or in-the-money (ITM) options.
This reflects the market's high demand for downside protection against sharp drops.
Glossar
Downside Protection
Mitigation ⎊ Downside protection, within cryptocurrency and derivative markets, represents strategies designed to limit potential losses stemming from adverse price movements.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Volatility Skew
Bias ⎊ This term describes the non-symmetrical relationship between implied volatility levels for options with different strike prices, indicating a market bias toward expecting larger moves in one direction.