Matrixport Research: A Brief Analysis of the Relationship Between Implied Volatility (IV) and Realized Volatility (RV), and How to Profit from BTC Volatility
To profit from buying options in the BTC market, traders must seize large-scale fluctuations in the market.The volatility of BTC attracts numerous options traders who hope to profit from the market's dramatic fluctuations. However, historical data shows that BTC options buyers tend to incur significant losses, a phenomenon consistent with trends in traditional options markets. This outcome primarily stems from the structural dynamics of the market, particularly the relationship between implied volatility (IV) and realized volatility (RV).
High Implied Volatility (IV) and Time Decay Favor Volatility Sellers
At major options exchanges, BTC options are typically priced with high implied volatility. An analysis from 2021 to 2025 indicates that the 90-day implied volatility of BTC is, on average, 5.8 percentage points higher than the realized volatility. For instance, when the market prices the implied volatility at 70%, the actual volatility of BTC is around 64.2%. In other words, the options that traders purchase are priced with an implied volatility of 70%, but the eventual realized volatility often only reaches 64.2%.
To profit from buying options in the BTC market, traders must capture large-scale volatility that the market fails to anticipate. However, accurately predicting the timing of these events is extremely difficult. If the market does not experience a significant spike in volatility or a directional breakout, most call and put options will approach zero value over time, ultimately leading to losses for buyers.
The high loss rate among BTC options buyers is due to their tendency to pay excessively for volatility that is difficult to realize. High implied volatility, time decay, and the rarity of extreme volatility events significantly reduce the odds for options buyers. Although BTC remains one of the most volatile major assets, its options market structure is still more favorable to disciplined volatility sellers rather than speculative buyers.
Miners Prefer to Sell Volatility Realization, Making More Economic Sense
Miners tend to sell volatility rather than buy options because selling options can generate cash inflows, while buying options requires paying premiums, resulting in cash outflows. Given that miners' operations heavily rely on capital investment and that the volatility of BTC prices directly impacts their earnings, they are structurally more inclined to realize BTC's volatility rather than spend money on expensive hedging tools. Unless miners anticipate significant adverse movements in BTC prices, selling volatility and continuously collecting option premiums makes more economic sense than purchasing options that may turn out to be ineffective protection.
How MicroStrategy, a Major Holder of BTC, Generates Returns
MicroStrategy is one of the largest corporate holders of BTC globally, known for its aggressive BTC accumulation strategy. Despite being fully exposed to the risks of BTC price volatility, the company actively sells volatility at the corporate financing level, utilizing convertible bonds and stock issuances to capitalize on the volatility of its stock market.
One of MicroStrategy's primary financing methods is issuing convertible bonds. Convertible bonds are a debt instrument that allows bondholders to convert their bonds into MicroStrategy's stock at a predetermined price. From the company's perspective, issuing convertible bonds is economically similar to selling call options on its stock—the trading price of the stock is typically twice the value of its BTC holdings. By offering this upside potential to bondholders, MicroStrategy can secure funding at a cost far below traditional debt market rates. The embedded option allows bondholders to profit when MicroStrategy's stock price rises significantly, meaning MicroStrategy is selling equity volatility in exchange for upfront capital.
Disclaimer: The market carries risks, and investment should be approached with caution. This article does not constitute investment advice. Trading in digital assets may involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided herein.
