What it really means
Think of IV like the market’s weather forecast. The stormier it expects conditions to be, the more expensive insurance becomes.
Volatility
Implied Volatility
Implied volatility is the market’s expected future movement, embedded in option prices.
In one line IV is the market’s expectation of future movement.
Volatility
Expensive options usually mean high IV.
IV is one of the quickest ways to tell whether the market is paying up for future uncertainty.
Quick example
If earnings are tomorrow, IV often rises because the market expects a larger move than usual.
Why traders care
- High IV usually makes options expensive.
- Low IV usually makes options cheaper.
- Many strategies work better when matched with the right IV regime.
What beginners get wrong
- Confusing IV with direction. High IV does not mean bullish or bearish by itself.
- Buying options purely because a stock feels exciting.
- Ignoring how IV changes before and after events.
Test Yourself
Quick Quiz
See how well you understand the term before moving on.
1 High implied volatility generally means options are:
2 IV Rank of 90 means:
3 IV usually spikes around: