Crypto and derivatives · updated October 21, 2026
What is implied volatility and how do you read it
Implied volatility shows how much the market expects a stock's price to move from now on, worked out from the prices of options on that stock. Regular volatility looks back; implied volatility is an expectation for the future.
Implied volatility formula
- Implied volatility
- Worked out backwards from an option pricing model (Black-Scholes): how high volatility must be for the model to match the premium on the market.
- Expected move
- One standard deviation: in about two cases out of three, the price should stay within this range.
Worked example
A stock's options show an implied volatility of 25% a year. How much does the market expect it to move in a month?
For a $100 stock, the market expects the price a month from now to be, most likely, between about $93 and $107.
How to read implied volatility
Implied volatility rises ahead of earnings and big announcements, and drops sharply right after them.
When implied volatility can fool you
It does not show direction: high implied volatility can mean a big move up or down. The drop after the event: whoever buys options right before results pays an inflated premium that shrinks right after the announcement.
Related terms
Learn it in the Academy
Questions about implied volatility
What is the difference between historical and implied volatility?
Historical volatility is calculated from past prices. Implied volatility comes from option prices and shows what the market expects next.
Why does it matter for options?
Because it makes the premium bigger or smaller. When implied volatility is high, options are expensive.
These explanations are for information only. They are not a recommendation to buy or sell.
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