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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The market's forecast of how much a stock will move, baked into every option's price.
Why It Matters
Implied volatility (IV) is the single biggest lever in option pricing. Same strike, same expiration — but if IV doubles, the premium roughly doubles too. That's why options get expensive before earnings (high IV) and cheaper after (IV crush). You can be right about direction and still lose money if you bought when IV was inflated.
Key Points
- IV is expressed as an annualized percentage - higher IV means the market expects bigger moves
- IV rises before known events (earnings, FDA decisions) and collapses once uncertainty resolves
- Compare a stock's current IV to its historical range (IV percentile/rank) to judge if options are cheap or expensive
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How Options Are Priced
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
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Common Questions
The market's forecast of how much a stock will move, baked into every option's price. Implied volatility (IV) is the single biggest lever in option pricing. Same strike, same expiration — but if IV doubles, the premium roughly doubles too.
Implied volatility (IV) is the single biggest lever in option pricing. Same strike, same expiration — but if IV doubles, the premium roughly doubles too. That's why options get expensive before earnings (high IV) and cheaper after (IV crush). You can be right about direction and still lose money if you bought when IV was inflated.
IV is expressed as an annualized percentage - higher IV means the market expects bigger moves
IV rises before known events (earnings, FDA decisions) and collapses once uncertainty resolves
Compare a stock's current IV to its historical range (IV percentile/rank) to judge if options are cheap or expensive