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.
Glossar
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
Options
Hedging ⎊ The primary strategic application of these instruments, allowing market participants to offset potential adverse price movements in their underlying crypto holdings.
Options Pricing
Model ⎊ Options pricing refers to the quantitative methods used to determine the fair value of a derivatives contract based on various market inputs.