Implied volatility
The level of future volatility the options market is pricing in, backed out from current options prices rather than measured from past price action.
What the numbers mean
There is no lookback at all — implied volatility is solved backwards out of current option prices, so it reflects what the market is paying for future movement. The convention is to quote it annualised, often standardised to a 30-day horizon.
- 30-day IV — the standard quoted horizon
- IV rank / IV percentile — where today's IV sits within its own past year, which is how traders actually judge it
- Annualised, like historical volatility, so the two are directly comparable
- No lookback — it is solved backwards out of current option prices
How it is used
Read as the market's expectation of turbulence: high IV means options are expensive and a large move is priced in, and IV typically collapses immediately after earnings once the uncertainty resolves.
- High IV → options expensive; premium sellers are favoured
- Low IV → options cheap; buyers are favoured
- IV collapsing immediately after earnings → the well-known volatility crush
- IV rising while price is flat → the market is pricing an event ahead
How it relates to everything else
IV is the market's price for future movement, and it is systematically higher than the volatility that actually arrives — a premium sellers collect and buyers pay. Reading it against historical volatility, and against its own past range through IV rank, is how that gap gets judged.
- IV vs HV → what is priced versus what has happened
- IV rank matters more than the raw number
- Reflects hedging demand as much as expected movement, and says nothing about direction
What to watch for
It is a price, not a forecast, and it reflects demand for hedges as much as expected movement. It says nothing about direction, and it is systematically higher than the volatility that subsequently occurs.