How Does Theta Affect Options on Volatile Cryptocurrencies?
Theta still causes time decay on crypto options, but the high implied volatility (IV) of cryptocurrencies often results in a higher initial time value. While the rate of decay (Theta) applies, the potential for large price swings (high IV) can temporarily counteract or mask the daily decay until expiration nears.
Glossar
High Volatility
Instability ⎊ High volatility in cryptocurrency, options, and derivatives signifies amplified and accelerated price movements, exceeding historical norms and creating substantial risk exposures for market participants.
Cryptocurrency Options
Volatility ⎊ Cryptocurrency options, fundamentally derivatives, grant the holder the right, but not the obligation, to buy or sell a specified cryptocurrency at a predetermined price on or before a specific date.
High Implied Volatility
Skew ⎊ High implied volatility, particularly when manifested as a pronounced skew in the volatility smile or smirk, signals elevated risk perception within cryptocurrency options markets.
Price Swings
Volatility ⎊ Price swings, within cryptocurrency markets, options trading, and financial derivatives, represent abrupt and substantial fluctuations in asset prices.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.