How Does High Implied Volatility Affect the Premium of Both Call and Put Options?
High implied volatility (IV) increases the option premium for both call and put options, assuming all other factors (strike price, time to expiration, underlying price) remain constant. This is because IV represents the market's expectation of larger future price movements.
Larger movements increase the probability that the underlying asset's price will move far enough to make both call options (higher price) and put options (lower price) profitable, thereby increasing the option's intrinsic value and its cost to the buyer.
Glossar
Option Premium
Cost ⎊ The Option Premium represents the initial cost paid by the buyer to acquire the right conveyed by the contract, functioning as the price for risk transfer.
Short Strangle Strategy
Construction ⎊ A Short Strangle strategy, within cryptocurrency options, involves simultaneously selling an out-of-the-money call and an out-of-the-money put option on the same underlying asset with the same expiration date.
High Implied Volatility
Skew ⎊ High implied volatility, particularly when manifested as a pronounced skew in the volatility smile or smirk, signals elevated risk perception within cryptocurrency options markets.
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.