How Does a Significant Market Event, like a Regulatory Announcement, Impact the Implied Volatility of Crypto Options?

A significant market event introduces uncertainty, causing traders to anticipate larger potential price swings. This heightened expectation of movement dramatically increases the demand for options, both calls and puts, as traders seek to hedge or speculate.

The increased demand drives up the option premiums, which, in turn, causes the Implied Volatility (IV) to spike, a phenomenon known as a 'volatility spike'.