Implied Volatility
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Implied volatility (IV) is the level of annualized volatility that, when plugged into the Black-Scholes formula, reproduces the observed market price of an option.
It represents the market's expectation of future realized volatility — not a historical measurement. IV typically rises ahead of known events (earnings, FOMC) and falls afterwards as uncertainty resolves.
Key uses:
- Compare options across strikes / expirations on a like-for-like basis.
- Identify rich or cheap premium relative to a stock's own history.
- Drive ranking inside screeners (e.g. Volatile Stocks).