◈ GLOSSARY · TRADING & MARKETS
Implied Volatility (IV).
A definition, in plain English — with the books that teach it.
ClearValue Books · reviewed against sources ·
◈ DEFINITION
What it means
Definition
The market's forward-looking guess at how much a stock will move, baked into option prices. High IV means options are expensive; low IV means they're cheap. IV typically expands before known events (earnings, FDA decisions, Fed days) and collapses immediately after — which catches a lot of new options buyers off guard.
◈ IN PRACTICE
Example
A stock at $100 has an at-the-money straddle priced at $8 with 30 days to expiration — the market is implying roughly an 8% move. If you buy that straddle and the stock moves only 4% in the next month, you lose money even though you were directionally right that it would move.
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