Implied Volatility
The market’s expectation of future price movement, derived from option prices.
Also called: iv · vol crush · iv crush
In plain language
Implied volatility is backed out of option prices rather than measured from history. It is the volatility the market is currently pricing in.
High IV means expensive options. It typically rises ahead of known events — earnings, decisions, product announcements — and collapses immediately afterward.
That collapse, often called IV crush, can produce a loss on a correctly predicted move because the premium deflated faster than the price gained.
Why it matters
IV determines whether you are buying options cheaply or expensively. Ignoring it means you may be right about direction and still lose.
Common mistakes
- Buying options into an event without checking whether IV is already elevated.
- Comparing IV levels across instruments without reference to their own historical range.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How much an option’s price changes for a one-point move in implied volatility.
The price paid for an options contract.
The part of an option’s premium beyond intrinsic value, reflecting time and volatility.
How much and how quickly an asset’s price moves over a given period.
A company’s scheduled quarterly disclosure of financial results.