Distinguish between Historical Volatility and Implied Volatility (IV).
Historical Volatility (HV) is a backward-looking measure, calculating the actual price fluctuations of the underlying asset over a specified past period. Implied Volatility (IV) is a forward-looking measure, representing the market's consensus expectation of the underlying asset's volatility in the future, derived from the current option prices.
IV is the input that option pricing models solve for.
Glossar
Historical Volatility
Evidence ⎊ This metric is derived from the time-series of past asset prices, representing the actual realized dispersion of returns over a defined historical window.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Option Pricing Models
Framework ⎊ Option Pricing Models are mathematical constructs, such as the Black-Scholes or binomial models adapted for crypto, used to calculate the theoretical fair value of an option based on several key inputs.