What Is the Difference between Historical Volatility and Implied Volatility in Options Trading?

Historical Volatility (HV) is a backward-looking measure, calculated from the past price movements of the underlying asset over a specific period. It is a factual, statistical measure of past price dispersion.

Implied Volatility (IV), conversely, is a forward-looking measure derived from the current market price of an option. It represents the market's consensus expectation of the underlying asset's volatility for the remaining life of the option.

Traders use IV, not HV, in options pricing models to solve for the option's theoretical value.