How Does Implied Volatility Affect the Extrinsic Value of a Crypto Option?

Implied volatility (IV) is a market estimate of the underlying crypto's future price fluctuation. Higher IV suggests a greater chance the option will move ITM before expiration, increasing its extrinsic value (premium).

Lower IV reduces the extrinsic value. IV is a major component of the option's premium, especially for OTM options which have no intrinsic value.