The Bitcoin Volatility Premium represents the difference between implied volatility, derived from Bitcoin options prices, and its realized historical volatility. A positive premium indicates that market participants anticipate higher future price fluctuations than have recently occurred, demanding compensation for this perceived risk.
Mechanism
This premium arises from the supply and demand dynamics within options markets. Options buyers, seeking protection or speculative exposure, pay a price that reflects their expectations of future price movement. Options sellers require a premium to compensate for the risk assumed by writing these contracts, particularly within the volatile cryptocurrency market.
Methodology
Quantifying this premium involves systematic data acquisition from options exchanges, followed by the calculation of implied volatility using established pricing models adapted for crypto assets, and comparison against historical volatility measures. Institutional traders utilize this metric to assess relative option value, design hedging strategies, and inform directional bets on future price dispersion.
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