What Is the Difference between “Historical Volatility” and “Implied Volatility”?

Historical volatility (HV), also known as realized volatility, is a backward-looking measure that calculates the actual price fluctuation of an asset over a specific past period. Implied volatility (IV) is a forward-looking measure derived from the current market price of an option.

IV represents the market's expectation of the asset's future volatility over the option's life. HV is a factual measure, while IV is a forecast that changes based on market sentiment and options pricing.