Explain the Concept of 'Volatility Smile' in Crypto Options Pricing ▴ Learn

Explain the Concept of ‘Volatility Smile’ in Crypto Options Pricing.

The volatility smile is a graphical pattern where options with strike prices far Out-of-the-Money (OTM) or deep In-the-Money (ITM) have higher implied volatility (IV) than At-the-Money (ATM) options. This suggests the market prices a higher probability of extreme price movements than predicted by the Black-Scholes model.

Define “Volatility Smile” in the Context of Equity Options and Its Implication for Pricing

What Is a “Volatility Skew” or “Smile” and What Does It Indicate about Market Sentiment?

What Is the “Volatility Smile” or “Volatility Smirk” and What Does It Imply about Market Expectations?

Explain the Concept of “Moneyness” (ITM, ATM, OTM)