How Does the Concept of 'Tail Risk' Specifically Apply to Altcoin Options Trading? ▴ Learn

How Does the Concept of ‘Tail Risk’ Specifically Apply to Altcoin Options Trading?

Tail risk refers to the risk of extreme, low-probability events, such as a sudden 50% altcoin price crash or a massive pump. In altcoin options, tail risk is high due to lower liquidity and smaller market caps.

This is reflected in the high implied volatility of out-of-the-money (OTM) put options (volatility skew). Market makers charge a significant premium for options that protect against these tail events.

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Explain the Concept of ‘Tail Risk’ in the Context of Customized Derivatives

What Is the Difference in Maximum Loss between Buying an OTM Option and Buying an OTM Future?

Why Does an ITM Option Have a Higher Premium Compared to an OTM Option with the Same Expiration?