Implied Volatility in Practice

What is Implied Volatility (IV)?

Implied Volatility (IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →) — the market's expectation of how much the price will move over a given period. It is not a forecast of direction. It is only a measure of the size of the move.

IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → is measured in percent:

SOL IV is typically 70-80%. That means the market expects roughly 20-23% of price movement per month. Our example position's Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → ($90 strike) was bought right in that zone — at 74%.

Why are crypto options more expensive than stock options?

Because crypto moves around a lot more:

SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → protection is ~3x more expensive than Apple stock protection. This is exactly why we need Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → and Covered CallCovered CallAn options strategy: sell a call option while holding the underlying asset. Generates premium income but caps upside.Read the lesson → — to bring the cost down.

IV Crush — what is it?

IV Crush — a sudden drop in volatility after a major event.

Before the event: nobody knows what will happen. Uncertainty is high. IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → is high. OptionsOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → are expensive. After the event: everything is clear. IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → drops. OptionsOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → get cheaper.

What this means for you:

• If you bought before — the option's price drops, even if the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price didn't change
• If you sold before — you profit from the drop in IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →

When is the best time to buy protection?

The rule is simple: buy when it's calm. Don't buy during panic.

What this looks like during a roll: if the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → roll timing coincides with high IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →:

1. The old PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → sells for more (high IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → also lifts its remaining value)
2. After waiting a few days for IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → to drop, the new PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → costs less
3. But between these two steps, the portfolio is left without protection

DVOL — crypto's "fear index"

Traditional markets have VIX (the S&P 500 fear index — it measures stock market volatility). In crypto, Deribitad has DVOL (the DeribitDeribitA crypto options exchange. In our strategy this is where we buy put protection and sell covered calls.Read the lesson → VolatilityVolatilityThe degree of price fluctuation. High volatility means greater uncertainty about price movement.Read the lesson → index — crypto's equivalent):

IV across different time horizons

IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → differs depending on the option's duration:

We use 120 days — the sweet spot where IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → is already more normal, but there's still enough liquidity.

IV and the cost of protection

Our Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson →'s cost depends directly on IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →:

The price table below is per unit, while the net is calculated with our actual quantities: Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → ×200, Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → ×100 and ×100.

At 74% this is exactly our example position: -$6.50 × 200 + $5.00 × 100 + $3.00 × 100 = -$1,300 + $500 + $300 = -$500.

What the table shows: the higher the IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →, the more expensive the net Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson →. That's because the $90 PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → we're long (almost ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →) reacts more strongly to IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → than the $65 and $60 PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → we're short (far OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →). Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → premium grows, but it doesn't offset the pricier Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → leg. High IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → doesn't make protection free — it makes it more expensive.

Once you understand IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →, you can see for yourself when protection is cheap and when it's overheated — and pick your timing to buy the way experienced traders do.

Module summary

What we've covered in this module so far:

1. Option anatomy — CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson →/PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →, strike, expiry, premium
2. Moneyness zones — ITMITMIn The Money — an option that has intrinsic value.Read the lesson →/ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →/OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →, intrinsic vs. time value
3. The Greeks — DeltaDeltaAn option's price sensitivity to the underlying price. Delta 0.50 means: if the underlying rises $1, the option price rises about $0.50.Read the lesson →, ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson →, GammaGammaThe rate of change of delta. High gamma means delta shifts quickly as the price moves.Read the lesson →, VegaVegaAn option's sensitivity to volatility (IV). High vega means the option price depends heavily on IV.Read the lesson →
4. Deribit — where and how to trade options
5. Protective Put — portfolio protection
6. Put Spread — cheaper protection
7. Covered Call — income from selling
8. Managing the cycle — the 120-day cycle, PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → rolls
9. Implied Volatility — how volatility affects prices

Two lessons remain in this module: 10. Payoff Diagrams and 11. Collar.

Next: PayoffPayoffA profit-and-loss profile plotted against price (a diagram).Read the lesson → diagrams — how to see a position's floor, ceiling, and breakeven point in a single chart.