#MemecoinSentiment

Meme coins, such as Dogecoin or Shiba Inu, exhibit highly volatile and sentiment-driven price dynamics. Traditional option pricing frameworks, which assume volatility arises from fundamental risk factors, may misprice derivatives on these assets. This paper develops a theoretical model wherein meme coin volatility is an increasing function of investor sentiment. By endogenizing volatility, we show how surges in online hype or community enthusiasm can drive option prices—especially for out-of-the-money calls—to levels exceeding standard Black–Scholes predictions. Our approach highlights a form of reflexive pricing: when markets expect increased hype, implied volatility jumps and option premiums follow suit, independent of any underlying cash flows. We derive a closed-form expression under simplifying assumptions and discuss extensions that capture more complex interactions between sentiment and price formation. The model yields testable predictions on how derivative markets respond to shifts in social media trends. These findings help explain the persistent overpricing of meme coin options and underscore the need for sentiment-aware approaches in pricing assets whose value depends primarily on collective belief rather than fundamental value.