How Does High Volatility Impact Call Option Premiums?
High volatility significantly increases call option premiums. Volatility measures the potential magnitude of a cryptocurrency's price swings.
When volatility is high, there is a greater statistical probability that the crypto's price will experience a large upward move and rise far above the call option's strike price before expiration. This increased likelihood of the option becoming deeply profitable makes it more valuable to a buyer and riskier for a seller.
Consequently, the seller demands a higher premium to compensate for this increased risk.
Glossar
High Volatility Impact
Margin ⎊ Elevated market turbulence directly translates to increased margin requirements across leveraged crypto derivative positions, demanding greater collateralization to cover potential mark-to-market losses.
Call Option
Entitlement ⎊ The core of a call option within cryptocurrency derivatives represents a contractual right, but not an obligation, to purchase a specified digital asset at a predetermined price, known as the strike price, on or before a specific expiration date.
High Volatility
Instability ⎊ High volatility in cryptocurrency, options, and derivatives signifies amplified and accelerated price movements, exceeding historical norms and creating substantial risk exposures for market participants.