Where, Oh Where Has Bitcoin Volatility Gone? Part 2
At the same time that volatility and short-term implied volatility have been sucked out of the market, longer dated options (six months or so until expiration) are still pricing closer to their historical average volatility in the 70% range. This steepness in implied volatility term structure suggests one of two things: Investors expect that this period of low volatility will be transitory and that a catalyst in the next couple of months will once again rock markets, or perhaps sellers of options are just not willing to make a longer-term bet, and as such, are not providing any supply in these longer-term options. The result is a steepness in term structure that could present an opportunity for the volatility-savvy trader.
Implied volatility is an interesting asset to trade. Most individual investors who use options as part of their investment strategy do so for the purpose of speculation or protection. They might even employ income generation strategies by selling options against their holdings. They tend to be focused on prices: What level do they think this asset can get to before expiration? Where would they be willing to sell it or buy it? While the nuances of volatility and options pricing may not be obvious to everyone, every trade that a trader makes is implicitly taking a stand on implied volatility.
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