What Is Implied Volatility (IV) and How Is It Different from Historical Volatility?

Implied Volatility (IV) is a forward-looking measure, representing the market's expectation of future volatility, derived from the option's current market price. Historical Volatility (HV), in contrast, is a backward-looking measure, calculated from the past price movements of the underlying asset.

IV is a key input into option pricing models, while HV is used to gauge past risk.