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.
Glossar
Volatility Skew
Bias ⎊ This term describes the non-symmetrical relationship between implied volatility levels for options with different strike prices, indicating a market bias toward expecting larger moves in one direction.
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.
Historical Volatility
Evidence ⎊ This metric is derived from the time-series of past asset prices, representing the actual realized dispersion of returns over a defined historical window.