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mplied volatility (IV) is a metric that reflects the market’s expectations of how much the price of a stock or other underlying asset will fluctuate in the future. It’s a key factor in determining the price of options contracts. Here are some key points about implied volatility:
• Forward-Looking: Unlike historical volatility, which measures past price movements, implied volatility is forward-looking and derived from the current market price of an option1.
• Options Pricing: Higher implied volatility generally leads to higher option premiums because it indicates greater expected price movement1.
• Market Sentiment: IV can help gauge market sentiment and uncertainty. It tends to increase in bearish markets and decrease in bullish markets1.
• Calculation: Implied volatility is not directly observable and must be calculated using an options pricing model like Black-Scholes2.
Would you like to know more about how implied volatility affects your trading strategies?
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