How Is ‘Historical Volatility’ Different from ‘Implied Volatility’ in the Context of Options Trading?

Historical volatility (HV) is a backward-looking measure, calculated from the past price movements of the underlying asset over a specific period. Implied volatility (IV) is a forward-looking measure, derived from the current market price of the option itself.

HV tells you what the volatility has been, while IV tells you what the market expects the volatility to be in the future. IV is the crucial input for option pricing.