The market's expectation of future volatility, derived from option prices. Rises before earnings and major events.
What it measures
Implied Volatility (Implied Volatility · IV) is the size of the annual move the options market prices for a stock, backed out of contract prices themselves, not from the stock's history. Implied volatility of 40% means current contract prices assume an annual range of roughly that size, up or down.
An expectation that is bought and sold
Implied volatility is the real commodity in the options market: whoever buys contracts buys volatility, and whoever sells them sells it. When it rises, every contract gets pricier, and the reverse holds, even if the stock doesn't move at all. That's why it is always compared with realized volatility. The difference between the two is the volatility risk premium.
How it behaves around events
It swells before scheduled events (earnings, major data) because a move is certainly coming, then collapses right after, once the uncertainty clears. It also rises more in sharp declines than in rallies. Fear pays for insurance more than greed pays to chase, and this is the origin of the Skew in stock option chains.
Hypothetical example
Two stocks at $100 each, both with a one-month at-the-money contract. The first has implied volatility of 20% and its contract costs about $2.30. The second has 60% and its contract costs about $6.90. Same stock, same price. The whole difference is the expected move.
Common mistake
Always reading high implied volatility as an "opportunity" or always as a "danger". It is simply a price: high before a known event means the move is priced in, and low in a sleepy market means insurance is cheap. The right question is always whether the move you expect is bigger or smaller than what the market prices.
Where to see it on the platform
The options calculator takes implied volatility as an input and shows its effect on price and the Greeks. The VRP index in the macro tools compares it with realized volatility, and the volatility structure in the index bar compares its short end with the long end.
