How Does Implied Volatility Affect the Premium of an Options Contract?
Implied volatility (IV) is a measure of the market's expectation of future price movement of the underlying asset. A higher IV indicates the market expects larger price swings, which increases the probability of the option ending up ITM.
Therefore, high implied volatility leads to a higher option premium, and low IV leads to a lower premium.
Glossar
Future Price Movement
Trajectory ⎊ Within cryptocurrency derivatives and options trading, trajectory denotes the anticipated path of future price movement, extending beyond immediate volatility to encompass longer-term trends and structural shifts.
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.
Options Trading
Stewardship ⎊ Involves utilizing these contracts to manage exposure to assets whose underlying technology or governance may evolve, ensuring capital is not locked into potentially obsolete systems.