How Does Volatility Affect an Option’s Time Value?
Higher expected volatility of the underlying asset, like a cryptocurrency, increases an option's time value. Volatility signifies a greater chance of large price movements, increasing the probability that an option will become significantly in-the-money before expiration.
This potential for higher future intrinsic value makes the option premium, and thus its time value, higher. Lower volatility decreases time value.
Glossar
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.
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.