What it is
Implied volatility (IV) is a metric that represents the market's expectation of how much a stock's price will move in the future, based on the current prices of its options. Unlike historical volatility, which looks backward, IV is forward-looking. A higher IV suggests that the market expects larger price swings for the underlying asset, while a lower IV indicates expectations of less dramatic price changes.
Implied volatility is a crucial factor in options pricing; higher IV generally means higher option premiums for both calls and puts. Traders monitor IV closely, especially around earnings announcements or other major news events, as it tends to rise significantly before such events and then drop afterward. A rapid change in IV can indicate shifts in market sentiment or anticipation of significant price action.
Why it matters
Implied volatility impacts option prices and reflects market expectations of future price swings, which is critical for options traders and risk assessment.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice