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Implied 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 is a key factor in determining the price of options contracts12.
Here are some key points about implied volatility:
Forward-Looking: Unlike historical volatility, which looks at past price movements, implied volatility is forward-looking and derived from the current market price of an option.
Options Pricing: Higher implied volatility generally leads to higher option premiums, as it indicates greater expected price movement.
Market Sentiment: IV can provide insights into market sentiment and uncertainty. For example, it tends to increase in bearish markets and decrease in bullish markets12.
Would you like to know more about how implied volatility is calculated or how it can be used in trading strategies?
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