Implied Volatility (IV)

Implied volatility is the market’s priced-in expectation of future movement — and the main driver of option premium beyond intrinsic value.

What IV is (and isn’t)

IV is extracted from option prices using a pricing model (e.g. Black–Scholes). Higher IV → richer premiums. IV is not a prediction of direction; it is about the magnitude of expected moves.

IV rank / IV percentile

Traders compare current IV to its past range. High IV rank often favors defined-risk short premium (iron condors, credit spreads) if you expect vol to cool. Low IV rank can favor long options or calendars if you expect expansion — always with a clear thesis.

IV crush

After known events (earnings, FDA decisions), IV often drops sharply even if the stock moves. Long straddles can lose money if the realized move is smaller than what was priced in. Model both the price move and a vol drop when you can.

Skew and term structure

Different strikes and expirations can trade at different IVs (put skew, front-month spikes). Multi-leg strategies and calendars interact with the term structure — one reason multi-expiry calculators matter.

Strategy tilt by vol regime

• High IV, expect calm — short strangles/condors, credit spreads (defined risk preferred).
• Low IV, expect big move — long straddle/strangle, long calls/puts, debit spreads.
• Expect vol rise, price quiet — long calendars / diagonals (complex; model carefully).

Practice: Long straddle lesson · Iron condor lesson