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What Is ‘Implied Volatility’ and How Is It Derived from Market Data?

IV is the market's expected future volatility, derived by reverse-engineering the option's market price using the Black-Scholes model.
Greeks.Live20.11.25

What Is ‘Implied Volatility’ and How Is It Derived from Market Data?

Implied volatility (IV) is the market's expectation of how volatile the underlying asset's price will be in the future. It is not directly observed but is derived (implied) by working the Black-Scholes model backward, using the current market price (premium) of the option, the strike price, time to expiration, and the risk-free rate.

It is a critical input for options pricing and is provided by specialized IV oracles.

How Is Implied Volatility (IV) Derived from the Market Price of an Option?
What Is the Black-Scholes Model and What Are Its Main Inputs?
How Does the Black-Scholes Model Use Implied Volatility to Calculate Option Price?
How Does the Concept of ‘Implied Volatility’ Arise from the Black-Scholes Model?

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