Implied Volatility (IV)
A model-implied parameter backed out from option prices—not a direct forecast, direction signal, or universal measure of option cheapness.
Implied volatility is the volatility input that makes a selected option-pricing model match an observed option price, given other inputs and conventions. It is model-dependent and varies by strike, expiration, option type, rates, dividends, borrow, liquidity, and data quality.
Frequently Asked Questions
Is implied volatility the market forecast of realized volatility?
Not exactly. It reflects option prices under a model and can include risk premiums, supply and demand, hedging pressure, liquidity, jumps, and model error. Realized volatility may be higher or lower.
Does high IV mean options are expensive?
Not by itself. Relative value depends on the volatility surface, realized-volatility expectations, jump risk, skew, term structure, spreads, and strategy payoff. High IV can be justified or still insufficient.
What is IV crush?
It describes a decline in implied volatility, often after an event. Option value may fall if other inputs are unchanged, but the actual result also depends on the underlying move, time decay, skew changes, and the position Greeks.
Can VIX thresholds predict stock returns?
No fixed VIX level guarantees fear, panic, or future equity returns. VIX reflects a specific S&P 500 options-based methodology and horizon, and interpretation depends on term structure, market regime, and context.