Glossary
Implied Volatility
Implied volatility reflects market expectations for future movement and can strongly affect option prices.
Written byAdmin
Reviewed forClarity and risk framing
Last updated2026-05-04
Definition
Implied volatility is a market-derived estimate of expected future movement in the underlying asset. It is embedded in option prices.
Real Example
If two options have the same strike and expiration but one has higher implied volatility, that option will usually cost more.
Risks
Implied volatility can fall after anticipated events. This can reduce option prices even when the underlying moves in the expected direction.
FAQ
Does implied volatility predict direction?
No. It relates to expected magnitude of movement, not whether the move will be up or down.