Why Is the ATM Option Most Sensitive to Changes in Implied Volatility? ⎊ Path

Why Is the ATM Option Most Sensitive to Changes in Implied Volatility?

The ATM option is most sensitive to IV changes because its entire premium is time value, and time value is primarily driven by IV. Deep ITM options are dominated by intrinsic value (which IV does not affect), and deep OTM options have a lower probability of being affected by IV changes.

The ATM option is at the point of maximum uncertainty, making its price most responsive to changes in expected volatility.

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Glossar

IV Changes

Volatility ⎊ IV changes refer to shifts in the market's expectation of future price volatility for an underlying asset, such as a cryptocurrency.

Atm Option

Strike ⎊ An At-the-Money (ATM) option is characterized by its strike price being precisely equal, or extremely close, to the current market price of the underlying cryptocurrency asset.