What Is “Implied Volatility” in Options Trading?

Implied volatility (IV) is a forward-looking metric that represents the market's expectation of how much the price of the underlying asset will fluctuate over a specific period. It is a key input into options pricing models and is derived by working backward from the current market price of an option.

High IV suggests the market anticipates large price swings, making options more expensive (higher premium). IV is distinct from historical volatility, which measures past price movement.

MEV-induced price spikes can cause short-term distortions in IV.