What Is a Volatility Skew in the Context of Crypto Options?
A volatility skew (or smile) describes the phenomenon where options with the same expiration date but different strike prices have different implied volatilities. Typically, out-of-the-money put options (lower strikes) on crypto like Bitcoin have higher implied volatility than at-the-money options.
This skew reflects the market's greater demand for downside protection (fear of a crash).
Glossar
Volatility Skew
Bias ⎊ This term describes the non-symmetrical relationship between implied volatility levels for options with different strike prices, indicating a market bias toward expecting larger moves in one direction.
Downside Protection
Mitigation ⎊ Downside protection, within cryptocurrency and derivative markets, represents strategies designed to limit potential losses stemming from adverse 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.