What Is the “Implied Volatility” of an Options Token and Why Is It Important for Pricing?

Implied volatility (IV) is the market's expectation of how much the price of the underlying asset will fluctuate between the present and the option's expiration. It is not a historical measure but a forward-looking input derived by reverse-engineering the option's market price using a pricing model like Black-Scholes.

IV is crucial because it is the single most important variable in determining an options token's premium (price). Higher IV means a higher probability of extreme price movements, thus increasing the option's value.