Definition
Implied volatility is a forward-looking measure derived from option prices that reflects the market's expectation of how much the underlying asset's price will fluctuate. Higher IV means more expensive options. IV often increases before earnings or major events and decreases after (IV crush).
Example
If a stock's IV jumps from 30% to 60% before earnings, option premiums roughly double, making options more expensive.
FAQ
What is Implied Volatility (IV)?
The market's expectation of future price volatility implied by option prices.
Why is Implied Volatility (IV) important?
Implied Volatility (IV) helps investors evaluate options and make more informed decisions.