What Is Implied Volatility? Meaning & Example
Definition
Implied volatility is the market's expectation of future price swings, derived from option prices. Higher implied volatility makes options more expensive.
Related terms
Volatility measures how much and how quickly prices move. Higher volatility means bigger swings, which bring both more opportunity and more risk.
Option PremiumThe premium is the price paid by an option buyer to the seller. It reflects intrinsic value, time remaining and expected volatility.
OptionAn option is a contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price before or on a certain date. Options can be used for income, hedging or speculation.
What is Implied Volatility?
Implied volatility is the market's expectation of future price swings, derived from option prices. Higher implied volatility makes options more expensive.
Can you give an example of Implied Volatility?
Option premiums often rise before earnings because implied volatility climbs ahead of the announcement.