How Does the Black-Scholes Model Use Implied Volatility to Calculate Option Price?

The Black-Scholes model uses five inputs: the underlying asset price, the strike price, time to expiration, the risk-free interest rate, and implied volatility. IV is the crucial input that is solved for when the market price of the option is known.

When calculating a theoretical price, the model plugs in the market's implied volatility to determine the fair value. A higher IV input directly results in a higher calculated theoretical option price, all else being equal.