Define ‘Implied Volatility’ (IV) in Options Trading

Implied Volatility (IV) is the market's forecast of the likely volatility of an underlying asset's price over the life of the option. It is not directly observable but is derived by plugging the current market price of the option into an options pricing model (like Black-Scholes) and solving for volatility.

High IV suggests the market expects large price swings, making options more expensive.