How Does the ‘Sticky Delta’ Concept Relate to Options Trading?
'Sticky Delta' is a hypothesis that suggests that when the underlying asset price changes, the Implied Volatility (IV) for a given Delta level (e.g. 25-Delta) tends to remain constant.
This contrasts with the 'Sticky Strike' hypothesis, where IV for a given strike price remains constant. Sticky Delta is often observed in the cryptocurrency options market during significant price moves.
Glossar
Underlying Asset Price
Valuation ⎊ The underlying asset price in cryptocurrency derivatives represents the current market consensus of an asset’s worth, serving as the foundational input for pricing options and futures contracts.
Sticky Delta Assumption
Assumption ⎊ The sticky delta assumption posits that an option's implied volatility remains constant for a specific delta value, even as the underlying asset price changes.
Cryptocurrency Options Market
Landscape ⎊ The Cryptocurrency Options Market is the segment of the digital asset financial ecosystem where contracts granting the right, but not the obligation, to transact an underlying crypto asset at a future date or specified period are traded.
Sticky Delta Concept
Concept ⎊ The sticky delta concept is a modeling assumption used in options pricing where the implied volatility for a specific option remains constant for a given delta, regardless of changes in the underlying asset price.
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.
Option Pricing
Derivatives ⎊ Option pricing is the mathematical process of determining the fair theoretical value of a derivative contract, such as a call or put, based on inputs like the underlying asset price, time to expiration, volatility, and prevailing interest rates.