What Is “Implied Volatility” and How Is It Derived for Cryptocurrency Options?

Implied Volatility (IV) is the market's expectation of how volatile the underlying cryptocurrency will be over the life of the option. It is not observed directly but is derived by working backward through an options pricing model (like Black-Scholes) using the current market price of the option.

For crypto options, IV reflects market sentiment and risk perception. It is a critical input for market makers, as a higher IV directly translates to a higher option premium and a wider RFQ spread.