How Does Implied Volatility of an Option Relate to Perceived Security Risk of a Coin?
High perceived security risk, such as the potential for a 51% attack, increases the probability of extreme price movements, both up and down. This increased probability of large moves translates directly into higher implied volatility (IV) for the coin's options.
Therefore, a high IV for a low-difficulty altcoin often reflects the market's assessment of its inherent security vulnerability and the resulting 'tail risk' of a catastrophic price crash.
Glossar
Security Vulnerability
Exploitation ⎊ A security vulnerability within cryptocurrency, options trading, and financial derivatives represents a weakness in code, design, or implementation that can be leveraged to compromise system integrity or financial assets.
Perceived Security Risk
Hazard ⎊ The perceived security risk, within cryptocurrency derivatives, options trading, and financial derivatives, represents a subjective assessment of potential threats impacting asset valuation and contract performance.
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.