How Does Spoofing Affect the Calculation of an Option’s Intrinsic Value?
Spoofing can temporarily affect the calculation of an option's intrinsic value by artificially manipulating the spot price of the underlying asset. An option's intrinsic value is the profit realized if the option were exercised immediately, which is the difference between the strike price and the current spot price.
If a spoofer temporarily inflates the spot price, they artificially increase the intrinsic value of a call option (or decrease a put option's value). This is a fleeting effect, but it can be used to mislead traders or influence automated systems that rely on the spot price.
Glossar
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
Spot Price
Valuation ⎊ The spot price in cryptocurrency, options, and derivatives represents the current market-clearing price for immediate delivery of the underlying asset, functioning as a fundamental benchmark for pricing more complex instruments.
Spoofing
Action ⎊ Spoofing, within cryptocurrency derivatives and options markets, represents a deceptive trading practice involving the placement of orders intended to create a false impression of market activity or interest, without the actual intention to execute those orders.
Intrinsic Value of a Call Option
Valuation ⎊ The intrinsic value of a call option, within cryptocurrency derivatives, represents the immediate profit obtainable through exercising the option, calculated as the difference between the underlying asset’s current market price and the option’s strike price, provided the market price exceeds the strike.