![]() There’s one major caveat, though: IV doesn’t predict the direction of the move, just the magnitude and probability. Generally, the higher an option's implied volatility, the higher its price, and the bigger the expected price change in the underlying stock. It’s calculated using a derivative pricing model, which is a fancy way of saying it connects the dots between the stock’s options pricing and the market’s expectations for the future. Implied volatility (IV) is a statistical measure that reflects the likely range of a stock’s future price change. Historical Volatility: Expectations and Reality And “what’s priced in” can be a key factor in whether your options trade is profitable. Just as gravity impacts our daily lives, implied volatility is a critical ingredient in options pricing. ![]() You can’t directly observe it, but you know it’s there, and it’s measurable.
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