Glossary

Implied Volatility (IV)

By Rohan Fernandes, Founder, Optionscanner · Updated 2026-09-22 · Educational reference, not investment advice

Implied volatility is the annualized volatility number that, plugged into an option pricing model, reproduces the option's current market price. It is the market's forward-looking price of movement, quoted in percent per year.

An IV of 30% on a $100 stock prices roughly a ±30% range for one year at one standard deviation, scaling with the square root of time: about ±8.7% over a month. IV is solved from prices, not observed, so it inherits every quirk of the quote: each strike and expiration carries its own IV (the smile and term structure), and stale or wide quotes produce unreliable IV. Because United States equity options are American-style, careful solvers strip the early-exercise premium before backing out IV; skipping that step distorts in-the-money puts most.

Frequently asked questions

What does implied volatility measure?

The volatility an option's market price implies when it is put back through a pricing model. It is the market's forward estimate of how much the underlying will move, expressed as an annualized percentage, not a record of how much it has moved.

Why does implied volatility differ from historical volatility?

Historical volatility is measured from past prices; implied volatility is priced from option quotes and carries a premium for uncertainty and for the convexity option buyers hold. The gap between them is the volatility risk premium, which the net volatility risk premium page turns into a single number.

How is implied volatility turned into an expected move?

Multiply the annualized IV by the square root of the fraction of a year until expiry and by the stock price. For a stock at 100 with 30 percent IV, one standard deviation over 30 days is about 100 times 0.30 times the square root of 30 over 365, roughly 8.6 points.

Sources

Educational reference. Optionscanner is a software tool. It is not a broker-dealer, an investment adviser, or a fiduciary, and nothing on this page is investment advice or a recommendation to buy or sell any security. Options involve risk and are not suitable for every investor; read the Characteristics and Risks of Standardized Options before trading. Examples use hypothetical numbers for illustration only.