What Is Implied Volatility (IV) and How Does It Affect the Pricing of Crypto Options?

Implied volatility (IV) is the market's forecast of the underlying cryptocurrency's price fluctuation over the life of the option. It is a key input in option pricing models, such as Black-Scholes.

A higher IV indicates the market expects larger price swings, which increases the probability of the option expiring 'in-the-money.' Therefore, higher IV directly leads to a higher option premium (price).