In Options Trading, How Is a Low-Difficulty Coin’s Volatility Potentially Affected by Its 51% Attack Vulnerability?
The vulnerability to a 51% attack introduces a significant, unquantifiable tail risk. This systemic risk of sudden, catastrophic price collapse due to a successful double-spend attack increases the coin's overall volatility, especially its implied volatility.
Option traders will price this risk into their models, leading to higher premiums for both call and put options, reflecting the possibility of extreme price movements in either direction following an attack or a rumor of one.
Glossar
Systemic Risk
Contagion ⎊ Systemic risk within cryptocurrency, options trading, and financial derivatives manifests primarily through interconnectedness, where the failure of one entity can propagate rapidly across the system.
Catastrophic Price Collapse
Event ⎊ Catastrophic Price Collapse signifies an abrupt and severe decline in the valuation of a cryptocurrency or related derivative market, often exceeding several standard deviations from historical norms within a compressed timeframe.
Vulnerability
Exposure ⎊ Vulnerability within cryptocurrency, options, and derivatives manifests as quantifiable risk to capital stemming from imperfectly hedged positions or systemic dependencies.
Realized Volatility
Calculation ⎊ Realized volatility, within cryptocurrency markets and derivatives, represents an empirical measure of price fluctuation over a specified period, contrasting with implied volatility derived from option pricing models.