How Does Volatility Skew Affect the Pricing of Out-of-the-Money Crypto Options? ▴ Learn

How Does Volatility Skew Affect the Pricing of Out-of-the-Money Crypto Options?

Volatility skew describes the phenomenon where options with the same expiration date but different strike prices have different implied volatilities. Out-of-the-money (OTM) options, especially OTM puts, often have higher implied volatility than at-the-money (ATM) options.

This is because the market perceives a higher probability of extreme downside movements, leading to a higher premium for insurance against a crash.

How Does the Moneyness (ITM, OTM, ATM) of an Option Affect Its Bid-Offer Spread?

What Is Meant by an Option Being ‘In-the-Money’ (ITM), ‘At-the-Money’ (ATM), or ‘Out-of-the-Money’ (OTM)?

What Does It Mean for an Option to Be “In-the-Money”?

How Does the Concept of “Skewness” in the Implied Volatility Surface Affect the Mid-Price Calculation?