What Is ‘Implied Volatility’ and Why Is It Important for Premium?
Implied volatility (IV) is the market's expectation of the underlying asset's volatility over the life of the option. It is a crucial input in options pricing models like Black-Scholes.
Higher IV suggests greater expected price swings, which increases the probability of the option ending in-the-money, thus leading to a higher option premium.
Glossar
Options Pricing
Model ⎊ Options pricing refers to the quantitative methods used to determine the fair value of a derivatives contract based on various market inputs.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.