Implied Volatility - IV

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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 Black-Scholes Model.

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  2. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  3. What is the relationship between implied volatility and the volatility skew?

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  4. How is implied volatility for options impacted by a bearish market?

    Implied volatility for options increases during a bearish market. A bearish market is considered to have more risk than a ... Read Full Answer >>
  5. Can delta be used to calculate price volatility of an option?

    The delta of an option is a component of the Black-Scholes option pricing formula, which provides the implied volatility ... Read Full Answer >>
  6. What does a rising open interest on a stock signal?

    An increasing open interest indicates there are new option contracts on a stock being bought to open, and there is money ... Read Full Answer >>
  7. 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 >>
  8. 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 >>
  9. 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 >>
  10. 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 Black-Scholes model, that gives the market ... Read Full Answer >>
  11. Why is the Volatility Ratio important for traders and analysts?

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  12. What options strategies are best suited for investing in the metals and mining sector?

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