What Role Does Implied Volatility Play in Determining the Premium of a Crypto Option?

Implied volatility (IV) is a forward-looking measure representing the market's expectation of the underlying asset's price movement. It is the most significant factor in an option's premium (extrinsic value).

A higher IV indicates greater expected price swings, leading to a higher option premium because the probability of the option expiring in-the-money increases. IV is derived from the option's current market price, not historical data.