How Is Implied Volatility (IV) Calculated for Bitcoin Options?
IV is not directly calculated but is derived by inputting the current market price of an option (the premium) into an options pricing model, such as Black-Scholes, and solving for the volatility variable. It represents the market's expectation of the underlying asset's future price volatility over the life of the option.
Glossar
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.
Open Interest
MarketExposure ⎊ Open Interest represents the total notional value of all outstanding, unsettled derivative contracts ⎊ such as options or perpetual futures ⎊ that have not yet been closed out or exercised.
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.
Future Price Volatility
Expectation ⎊ Future price volatility represents the market's collective expectation of the magnitude of price fluctuations for a digital asset over a specified forward-looking period.
Risk-Free Rate
Rate ⎊ The risk-free rate represents the theoretical return on an investment with zero risk, serving as a critical input in option pricing models to calculate the cost of carrying an asset forward in time, particularly relevant for valuing longer-dated crypto options.
Options Pricing
Model ⎊ Options pricing refers to the quantitative methods used to determine the fair value of a derivatives contract based on various market inputs.