What Is Implied Volatility and How Does It Relate to Option Pricing?
Implied volatility (IV) is the market's expectation of the underlying asset's price fluctuation over the life of the option, derived by working backward from the option's current market price using a pricing model. It is the single most important factor for an option's time value.
A higher IV indicates a higher perceived risk or potential for movement, leading to a higher option premium.
Glossar
Macroeconomic Events
Correlation ⎊ : Significant macroeconomic events, such as shifts in central bank policy or inflation data releases, increasingly demonstrate a measurable correlation with the price action of major cryptocurrencies.
Perceived Risk
Definition ⎊ Perceived risk refers to the subjective assessment of potential losses or negative outcomes by market participants, which may differ significantly from objective, statistically calculated risk metrics.
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.
Price Fluctuation
Volatility ⎊ Price fluctuation within cryptocurrency, options trading, and financial derivatives represents the degree of dispersion of potential returns, quantified by standard deviation or implied volatility derived from option pricing models.