What Is ‘Implied Volatility’ and How Does It Affect Option Pricing?
Implied volatility (IV) is the market's expectation of a security's future price volatility, derived by working backward from the current market price of an option using an option pricing model. Higher IV leads to higher option premiums for both calls and puts, as it suggests a greater probability of the option expiring in-the-money.
Security risks, like 51% attacks, directly inflate the IV of a coin's options.
Glossar
Option Pricing
Derivatives ⎊ Option pricing is the mathematical process of determining the fair theoretical value of a derivative contract, such as a call or put, based on inputs like the underlying asset price, time to expiration, volatility, and prevailing interest rates.
Interest Rates
Rate ⎊ The prevailing cost of borrowing funds, expressed as an annualized percentage, fundamentally influences asset valuation across cryptocurrency derivatives, options trading, and traditional financial markets.
Option Premiums
Valuation ⎊ Option premiums, within cryptocurrency derivatives, represent the price a buyer pays to a seller for the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specific date.