Implied Volatility Explained

Compare implied and realized volatility, event expectations and option-premium changes.

Implied Volatility Explained is a 4-page PDF field guide. Implied versus realized volatility, premiums and event risk.

• IV is backed out of price: It is the volatility input consistent with an option price under a model, not a directly observed statistic.

• Direction is absent: High implied volatility can precede moves either way and does not identify the winning side.

• Compare like with like: Use term, strike, event calendar and the underlying's own history before calling IV high or low.

• Event premium can vanish: After a known catalyst, options can lose volatility value even when price moves in the expected direction.

Action checklist: Record expiration and moneyness; Compare IV across nearby terms; Mark scheduled catalysts; Estimate spread and decay costs; Model both price and IV changes; Separate forecast error from execution error.

Models simplify markets; implied volatility is not a guaranteed range or forecast.