How Does Implied Volatility Affect an Option’s Delta?
Higher implied volatility (IV) generally pushes the Delta of both OTM and ITM options closer to 0.5 (or -0.5 for puts). Increased IV suggests a higher probability of the underlying price moving significantly, making OTM options more likely to become ITM and ITM options less certain to stay deep ITM.
This 'pull' towards 0.5 makes the option price more responsive to underlying price changes when IV is high.
Glossar
OTM Options
Option ⎊ An options contract, within the cryptocurrency derivatives space, represents a financial agreement granting the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset ⎊ typically a cryptocurrency or token ⎊ at a predetermined price (the strike price) on or before a specific date (the expiration date).
Vega
Sensitivity ⎊ Vega, within the context of cryptocurrency options and financial derivatives, quantifies the rate of change in an option’s price with respect to changes in the underlying asset’s implied volatility.
Long Option
Position ⎊ A long option position involves purchasing an options contract, granting the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price before or on a certain date.
ITM Options
Option ⎊ In cryptocurrency derivatives, an in-the-money (ITM) option represents a contract where the strike price is favorable to the holder relative to the current market price of the underlying asset.
OTM Options Benefit More
Leverage ⎊ OTM Options Benefit More from favorable price movements due to their significantly higher inherent leverage compared to At-the-Money or In-the-Money contracts.
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.