A persistent excess of implied volatility (derived from options prices) over realized volatility (historical price fluctuations) in the cryptocurrency options market. This premium represents the additional cost options buyers pay for protection or speculative exposure.
Mechanism
The structural volatility premium arises from various market dynamics, including consistent demand for options hedging, market makers pricing in potential tail risks, or a general imbalance between options buyers and sellers. It suggests that market participants consistently expect higher future volatility than what materializes.
Methodology
Options traders and risk managers analyze the structural volatility premium to assess the cost of hedging and the profitability of options selling strategies. A high premium indicates that selling options might be systematically advantageous, provided proper risk management is applied to account for potential volatility spikes.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
