What Is Implied Volatility and Why Is It Typically Higher for Cryptocurrency Options?
Implied volatility (IV) is a forward-looking metric that represents the market's expectation of future price volatility for an underlying asset, as implied by the prices of its options. IV is typically higher for cryptocurrency options because cryptocurrencies like Bitcoin and Ethereum are inherently more volatile than traditional assets like stocks or bonds.
Their prices are subject to rapid and large swings due to regulatory news, technological developments, and shifts in market sentiment, and this uncertainty is reflected in higher option premiums and thus higher IV.
Glossar
Option Premiums
Valuation ⎊ Option premiums in cryptocurrency derivatives represent the market’s assessment of the probabilistic difference between an underlying asset’s future price and its strike price, adjusted for time to expiration and inherent volatility.
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.
Bitcoin Halving
Disruption ⎊ Bitcoin halving events represent programmed reductions in block rewards, fundamentally altering the supply schedule of new bitcoin entering circulation.
Cryptocurrency Options
Stewardship ⎊ Involves the responsible structuring of these contracts to facilitate the financing of tokenized assets with verifiable sustainability metrics.