What Is ‘Implied Volatility’ and How Does It Influence the Options Spread?
Implied volatility (IV) is the market's expectation of future price swings of the underlying asset. High IV means higher uncertainty, which increases the option premium and the risk for the market maker.
To compensate for this increased risk, market makers will widen the bid-offer spread on options contracts. Lower IV generally leads to tighter spreads.
Glossar
Cryptocurrency Derivatives
Function ⎊ These financial instruments derive their valuation from an underlying cryptocurrency, enabling sophisticated risk transfer and speculation without direct asset ownership.
Future Price Swings
Price Projection ⎊ Future Price Swings refer to the anticipated magnitude and direction of movement in the underlying cryptocurrency price over a defined period, which is the primary variable that options strategies seek to forecast or monetize.
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.
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.