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How does skew affect the pricing of options in the digital currency space?

avatarKshitiz khanalDec 16, 2021 · 3 years ago1 answers

Can you explain how skew impacts the pricing of options in the digital currency market? What factors contribute to skew and how does it affect the value of options?

How does skew affect the pricing of options in the digital currency space?

1 answers

  • avatarDec 16, 2021 · 3 years ago
    In the digital currency space, skew can have a significant impact on the pricing of options. Skew refers to the difference in implied volatility between out-of-the-money options and at-the-money options. When skew is high, it means that there is a higher demand for downside protection, leading to higher implied volatility and higher prices for out-of-the-money put options. Conversely, when skew is low, there is a higher demand for upside potential, resulting in higher implied volatility and higher prices for out-of-the-money call options. Traders and investors need to closely monitor skew as it can provide insights into market sentiment and potential risks in the digital currency market.