What Does a High Implied Volatility (IV) Imply about Future Price Movement?
High implied volatility (IV) implies that the market expects the underlying asset's price to experience larger, more significant movements in the future, but it does not specify the direction. It indicates a higher degree of uncertainty or risk perceived by the market.
Traders are willing to pay a higher premium for options because the probability of the option expiring in-the-money is perceived as greater.
Glossar
Option Premium
Cost ⎊ The Option Premium represents the initial cost paid by the buyer to acquire the right conveyed by the contract, functioning as the price for risk transfer.
Future Price
Definition ⎊ The future price represents the agreed-upon price for an asset to be bought or sold at a specific date in the future, as defined by a futures contract.
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.
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.