DEFINITION of 'Implied Volatility  IV'
The estimated volatility of a security's price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
Implied volatility is sometimes referred to as "vols."
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BREAKING DOWN 'Implied Volatility  IV'
In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the BlackScholes Model.
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