Implied volatility (IV) is the amount of future price movement the market is pricing into an option. Rather than being measured from past data, it is inferred from the option's current price by working an option-pricing model backwards. A high IV means traders expect large moves and are paying more for options; a low IV means they expect calmer conditions.
Why it matters for options
IV is one of the biggest drivers of an option's premium, alongside the strike, time to expiry and the underlying price. Two consequences follow. First, options bought when IV is high are expensive, and if IV then falls the option can lose value even if the underlying moves your way, an effect known as IV crush, common after events like results. Second, comparing today's IV to its own recent range (its IV rank) helps judge whether options are relatively cheap or dear. IV reflects expected movement in either direction; it does not predict which way price will go. Learn more on AIVITTA options trading.