How Does Implied Volatility Affect the Pricing of Cryptocurrency Options?

Implied volatility (IV) is the market's expectation of how much the underlying cryptocurrency's price will fluctuate. Higher IV means higher option premiums, as there is a greater chance the option will expire in-the-money.

Conversely, lower IV leads to lower premiums. IV is the most significant input in the Black-Scholes model that is not directly observable, making it a key driver of option price movement.

Crypto options often exhibit much higher IV than traditional assets.