Glossary · Options

Implied volatility (IV)

The market's expectation of future price movement priced into options.

Implied volatility is the volatility level “baked into” current option prices. Higher IV means richer premiums because the market is pricing larger expected swings; lower IV means cheaper premiums for quieter expected moves.

IV is forward-looking sentiment, not a guarantee. Events like earnings often lift IV beforehand and crush it afterward (“IV crush”). Comparing IV to an asset’s recent realized volatility helps traders judge whether options look expensive or cheap.

Example

Ahead of an earnings report, call and put premiums expand even if the stock price hardly moves — that rise shows implied volatility increasing as traders brace for a bigger move.