What is Implied Volatility?

Implied volatility is the size of the price swings the market expects from a stock, worked backwards out of what its options cost. High IV means traders are paying up for protection or lottery tickets; it says how big the move might be, not which direction.

IV is quoted as an annualized percentage: an IV of 30 means the options market is pricing in roughly a 30% up-or-down range for the stock over a year. It is not measured from the stock's past moves; it is worked backwards from what traders are currently paying for its options, so it captures what the market expects next. Before a big event like earnings, options cost extra, because everyone expects a big move and sellers charge for that risk. The moment the news lands, the uncertainty is gone, and that extra charge drains straight back out of the option's price, a drop traders call IV crush. This is how you can buy a call before earnings, watch the stock rise, and still lose money: the stock's climb was smaller than the extra you paid for expected drama. The higher the IV, the more you pay for the same option, and the bigger the move you need just to break even.

Hurricane insurance in June. When forecasters predict a violent season, premiums rise along the whole coast before a single cloud forms, because the price reflects the expected storm, not the weather outside. If the season passes quietly, premiums deflate, and everyone who bought at the peak paid for wind that never came.