What Is Implied Volatility (IV) in Options?
Implied volatility is the market’s forecast of how much a stock might move. It drives option prices — here’s how.
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Implied volatility (IV) is the market’s expectation of how much an underlying will move in the future, expressed as an annual percentage. It is one of the biggest drivers of an option’s premium.
High IV vs low IV
When IV is high, options are expensive because the market expects big moves (e.g. around results or events). When IV is low, options are cheaper. Crucially, IV says nothing about direction — only the expected size of the move.
IV and option strategy
- Buying options is costlier when IV is high — and a fall in IV (vega risk) can lose you money even if the stock moves your way.
- Selling options collects richer premium when IV is high, but carries large risk.
- IV usually drops sharply right after a known event — the “IV crush”.
The India VIX
The India VIX is a market-wide volatility index derived from Nifty option prices — often called the market’s “fear gauge”. A rising VIX signals expected turbulence.
Understanding IV helps you see why an option is priced the way it is. Options are high-risk instruments — learn the basics in our options guide before trading.
