Option Expiry Volatility

Option Expiry Volatility describes the tendency for market volatility to increase as the expiration date of a large number of options contracts approaches. This is often driven by the need for market participants to roll their positions, close out existing hedges, or execute new trades based on their view of the price at expiry.

The convergence of spot and derivative prices at expiration can lead to erratic behavior in the underlying asset. In the crypto market, where monthly expiries are significant events, traders often see increased volume and price fluctuations in the days leading up to these dates.

This period is characterized by the unwinding of large gamma positions and the potential for market makers to shift their hedging strategies, contributing to a spike in both realized and implied volatility.