How Does a Wider Bid-Ask Spread on an Altcoin Affect Option Pricing? ⎊ Path

How Does a Wider Bid-Ask Spread on an Altcoin Affect Option Pricing?

A wider bid-ask spread on the underlying altcoin forces the market maker to quote a wider bid-ask spread for the corresponding option. The market maker must price in the higher cost and risk associated with hedging in the wide spot market.

The wider option spread compensates them for the uncertainty of the underlying's true value and the increased transaction costs of establishing and unwinding the hedge.

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Glossar

Altcoin

Definition ⎊ An altcoin refers to any cryptocurrency other than Bitcoin, encompassing a broad category of digital assets with varied functionalities and market capitalizations.