Using Implied and Realized Volatility to Trade Crypto Options
Summary
The article explains how options traders can compare implied volatility, which reflects the market’s priced expectation of future movement, with realized volatility, which measures past movement. That comparison can help assess whether options or particular strikes appear relatively expensive or inexpensive. It also discusses Vega, the option Greek that measures price sensitivity to changes in implied volatility, and notes that exposure varies by strike and expiration.
As a directional example, it describes buying puts when implied volatility is low and a volatility increase is expected, and selling covered calls when implied volatility is high and volatility is expected to fall. The latter is presented as more suitable for a sideways or gradual decline than a sharp drop. These are illustrative approaches, not demonstrated results: the article supplies no backtest or quantified evidence, and option outcomes also depend on price movement, expiration, and other risks. The discussion is educational and focuses on BTC options, with ETH data mentioned as another available market.
Key ideas
- Implied volatility represents expected movement embedded in option prices, while realized volatility describes observed movement.
- Comparing the two can help a trader judge relative option pricing.
- Vega measures how an option’s price responds to changes in implied volatility, with exposure varying across expirations.
- The article pairs long puts with low implied volatility and an expected volatility rise.
- Covered calls are presented for high implied volatility when volatility is expected to decline and the underlying is sideways or falling gradually.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.