Implied Volatility Guide

Understand market expectations of future movement and how it impacts option prices.

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What Is Implied Volatility (IV)?

IV represents the market's forecast of a stock's annualized volatility derived from option prices.

Volatility Skew

Difference in IV across strikes or expirations; often higher IV for OTM puts than calls in equities ("smirk").

Reading an Option Chain

• Compare IV across expirations to spot term structure.
• Look for unusually high IV relative to historical IV (IV rank / percentile).

Trading With IV

When IV is high, option premiums are rich, favoring selling strategies. When IV is low, buying premium is cheaper.