Implied Volatility

Benzinga  Mar 28  Comment 
Implied Volatility can impact the price of an option more than any other factor. Implied Volatility is a fancy word for an expected move. The longer there is until expiration, the more time there is for the market to move. This is why a binary...
FX Street  Mar 5  Comment 
A ForexTrading.TV Technical Analysis Video Alert for GBPUSD For more information, read our latest forex news and reports.  Mar 3  Comment 
This content brought to you by TheStreet's OptionsProfits. CLICK HERE FOR A 14-DAY FREE TRIAL. On Sunday, Eurasia Group President Ian Bremmer wrote about the scale of recent events in Ukraine: "As Russia conducts direct military intervention in...
Clusterstock  Jan 24  Comment 
The VIX — a measure of implied volatility of S&P 500 options commonly known as the "fear gauge" — shot up 30% today, marking the biggest daily gain since April as the stock market completed its biggest two-day slide since June. The VIX...
The Economic Times  Jan 23  Comment 
We have expiry and monetary policy coming next week which may lead to some rise in implied volatility, but uptick in IV’s may not be significant to generate meaningful trades.
The Economic Times  Nov 22  Comment 
There is huge built-up in 6000 call of November series, which we believe is both long and short and, hence, implied volatility has increased with little pace.
The Economic Times  Nov 4  Comment 
The sharp sell-off in euro, which shed over 2% last week, triggered a rush to hedge against more weakness. The 1-month euro/dollar implied volatility, rose to 7.525%.
FX Street  Oct 25  Comment 
A ForexTrading.TV Technical Analysis Video Alert for DXY For more information, read our latest forex news and reports.


Implied volatility is a measure of traders perceived risk in the underlying asset of an option.

Implied volatility is different from volatility, in the sense that implied volatility represents expectations about future fluctuations while volatility is observed by looking at past data.

Volatility expectations, or implied volatility, is deduced from option prices (both call and put) on an underlying security -- since these expectations are reflected in market prices of the option. Higher fluctuation expectations mean that the option has a greater probability of ending in the money, and thus the option commands a higher price and vice versa. By inputting the option price, along with other variables such as maturity, interest rate, strike price and underlying security price, in a pricing model (e.g. Black-Scholes) it is possible to derive an estimate of the investor's expectation of future volatility.

To derive a fair price for a particular option, the historical volatility is used. Often, though, the price that an option trades for on an exchange is different than the theoretical price, and the volatility that is used to derive the exchange price is referred to as implied volatility.

Implied volatility exhibits a skew since it is higher on options below the current price of the underlying security, than those above the current price of the underlying.

In practice, Implied Volatility is also the variable market makers play around with in order to make a higher profit on options that are suddenly in demand. This variability does not allow Black Scholes model to calculate implied volatility accurately.

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