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What Is ‘Implied Volatility’ and How Is It Derived in the Options Market?

IV is the market's expected future volatility, derived by solving the option pricing model backwards using the current market price.
Greeks.Live23.11.25

What Is ‘Implied Volatility’ and How Is It Derived in the Options Market?

Implied volatility (IV) is the market's expectation of the future volatility of the underlying asset over the life of the option. It is not forecasted but rather derived by plugging the current market price of the option, along with other known variables (strike price, time to expiration, interest rate), into an option pricing model like Black-Scholes and solving for the volatility.

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