What Role Does ‘Implied Volatility’ Play in the Pricing of Cryptocurrency Options?

Implied volatility (IV) is a critical input in options pricing models like Black-Scholes, representing the market's expectation of future price swings. Higher IV leads to higher option premiums because there is a greater chance the option will expire in-the-money.

Traders use IV to gauge market sentiment and risk. A sudden spike in IV often signals market uncertainty or anticipated major events.