What Is the Difference between Historical Volatility and Implied Volatility in This Context?
Historical volatility (HV) is a backward-looking measure, calculating the actual price fluctuations of the underlying asset over a past period. Implied volatility (IV) is a forward-looking measure, derived from the option's market price, representing the market's expectation of future volatility.
Option time value is primarily driven by IV, as it reflects the current consensus on future uncertainty, not past movement.
Glossar
Historical Volatility
Evidence ⎊ This metric is derived from the time-series of past asset prices, representing the actual realized dispersion of returns over a defined historical window.
Option Time Value
Value Component ⎊ Option Time Value, or extrinsic value, is the portion of an option's premium that exceeds its intrinsic value, representing the market's pricing of the probability that the option will move into or further into the money before expiration.
High Historical Volatility
Implication ⎊ High Historical Volatility signifies that a cryptocurrency asset has experienced significant and frequent price movements over a defined look-back period, indicating a high degree of past price dispersion.
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.