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."
INVESTOPEDIA EXPLAINS '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.
RELATED TERMS

Volatility Smile
A ushaped pattern that develops when an option’s implied volatility ... 
TimeVarying Volatility
Fluctuations in volatility over time. Volatility is the standard ... 
Horizontal Skew
The difference in implied volatility (IV) across options with ... 
Volatility Skew
The difference in implied volatility (IV) between outofthemoney, ... 
Expiration Date (Derivatives)
The last day that an options or futures contract is valid. When ... 
NonFluctuating
The characteristic of constancy in a security or measurement's ...
RELATED FAQS

What are the limitations of using delta to hedge options?
Delta hedging is a strategy used to mitigate the risk associated with the price move in the underlying asset of an option ... Read Full Answer >> 
Why does delta only range from 1 to 1?
Delta measures the sensitivity of an option relative to the underlying asset. It measures the rate of change in the price ... Read Full Answer >> 
What kinds of financial instruments can I use a straddle for?
Options are contracts that give the buyer a right to buy or sell a security at a certain price. They can be traded on futures ... Read Full Answer >> 
What is an option's implied volatility and how is it calculated?
Implied volatility is a parameter part of an option pricing model, such as the BlackScholes model, that gives the market ... Read Full Answer >> 
Why is the Volatility Ratio important for traders and analysts?
The volatility ratio was designed to tell traders when the price of a security breaks out of its true range. When the ratio ... Read Full Answer >> 
What options strategies are best suited for investing in the metals and mining sector?
In the past, the only way an investor could gain exposure to the precious metals market was through a commodities brokerage ... Read Full Answer >> 
When holding an option through expiration date, are you automatically paid any profits, ...
Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Full Answer >>
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