What is
Implied Volatility?
IV is why two options on the same stock can cost wildly different amounts. It's the market's forecast of future movement, baked into every premium. Here's what it means, and why it makes or breaks option trades.
Implied volatility, defined
Implied volatility (IV) is the market's expectation of how much the underlying will move (in either direction) over the life of the option, expressed as an annualised percentage. It is "implied" because it's backed out of the option's market price using a pricing model such as Black-Scholes — it's the volatility number that makes the model's price match the traded price.
Higher IV → the market expects bigger moves → options are more expensive. Lower IV → smaller expected moves → cheaper options. Crucially, IV says nothing about direction — only about expected magnitude.
Why IV matters for every trade
- Option buyers are hurt when IV falls (their premium deflates) and helped when it rises.
- Option sellers benefit from falling IV — they collect rich premium and watch it decay.
- Two options can have identical strikes and expiries but very different prices purely because of IV.
IV percentile and IV rank
A raw IV number means little on its own — is 18% high or low? IV percentile and IV rank fix this by comparing current IV to its own history (e.g. "current IV is higher than 80% of the past year"). High IV percentile = options relatively expensive; low = relatively cheap.
IV crush around events
Before a known event — earnings, the Union Budget, an RBI policy decision — IV rises as uncertainty builds and premiums get pricey. The moment the event passes, uncertainty vanishes and IV collapses. This is IV crush: premiums drop sharply even if the underlying barely moves, which is why naive event-day option buying so often loses.
India VIX — the fear gauge
India VIX is an index of the NIFTY's expected 30-day volatility, derived from NIFTY option prices. Rising VIX signals rising fear/uncertainty; falling VIX signals calm. It's a quick, market-wide read on the volatility environment you're trading in.
Track live IV across strikes
TradePulse shows live IV on the option chain and an interactive Greeks calculator so you can see how IV moves premiums.