How Does ‘Implied Volatility’ Differ from ‘Historical Volatility’?

Historical Volatility (HV) is a backward-looking measure, calculated based on the past price movements of the underlying asset over a specific period. Implied Volatility (IV) is a forward-looking measure, derived by inputting the current market price of an option into a pricing model (like Black-Scholes) and solving for the volatility.

IV represents the market's expectation of future price volatility, while HV represents what has already happened.