What Is Implied Volatility and How Does It Differ from Historical Volatility?

Implied volatility (IV) is a forward-looking measure, representing the market's expectation of the underlying asset's volatility over the life of the option. It is derived from the option's current market price.

Historical volatility (HV) is a backward-looking measure, calculated from the underlying asset's past price movements over a specific period. IV is a key input for pricing options.