Implied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
Black-Scholes price(σ_IV) = Market Premium → solve for σ_IV
Implied volatility (IV) is the volatility figure that, when plugged into an options pricing model (Black-Scholes or similar), produces the option's observed market price. It is forward-looking — it reflects what the market expects price variability to be over the option's life.
High IV inflates premiums; low IV compresses them. Traders monitor IV relative to its own history (IV rank / IV percentile) to assess whether options are cheap or expensive.
IV spikes around earnings, macro events, and market dislocations. Selling volatility (short premium) when IV is elevated and buying when it is depressed is a core institutional strategy.
On the desk
A quiet underlying with expensive options is a market charging for a possible jump. Selling that premium is a distinct strategy with its own ruin path.