Lesson

Implied volatility | Options Educator

See what the market's price says about future moves: solving for IV, the ±1σ cone, IV Rank and IV crush.

What you'll practice

  • The day before an earnings report, the call is quoted at $6.85. Move its implied volatility until the model price matches the quote, within $0.05.
  • After the report, with the stock where it was, the same call is quoted at $4.00. Solve for its implied volatility again, within $0.05.

In this lesson

IV: The Market's Forecast in the Price

  • IV is solved backwards from the market price
  • IV is the market's forecast of movement, not direction
  • The ±1σ cone is an approximate range; the 68% figure assumes normal returns

Historical vs Implied, Rich vs Cheap

  • IV usually exceeds historical volatility
  • High IV means more premium priced in, not an edge for sellers: compare it with the move you expect
  • IV crush follows scheduled events like earnings
  • IV Rank compares IV with its own 52-week range

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