Implied volatility of an option contract is the estimated value of the market tendencies of a stock option. Implied volatility is an important tool which may help to determine the likelihood of a stock option reaching a certain price at a certain time.
The implied volatility does not necessarily correspond with the current or historical volatility. Rather, it is an indicator of the predicted volatility of the collective market during the timeframe of an option.
Implied volatility has been proven to be mean reverting in most stocks. Therefore, many traders deploy volatility strategies to profit from this effect.
Implied volatility can come in many different measures for different timeframes. For example, the Brutus Options Ranker has criteria such as:
30 Day Implied Volatility [underlying]Implied Volatility [contract]
Both can be added to the user's strategy tree and used to evaluate implied volatility in their overall strategy rank.
A typical market scenario, in which the implied volatility or price of the nearest month is lower than the corresponding implied volatility or price of longer duration contracts. This term was initially used in oil market.[click to read more]
A general term in which strategy is utilized to take advantage of option's decaying premium associated with time value, implied volatility, neutralized spreads and arbitrage opportunities with a goal to make a reasonable and consistent return on investment.[click to read more]
A smile-like shape formed on a graphic representation of variance in implied volatility across different strike prices of the option that has the same expiration date and underlying security. This is a graphical representation of the volatility skew.[click to read more]
The 30 Day Implied Volatility [underlying] is the interpolated implied volatility forecasted over the coming 30 days for the underlying. This provides a VIX-type volatility measure to individual underlying.
Implied Volatility [Contract] defines the individual contract's or spread's implied volatility. Implied volatility at a contract level is the volatility implied for the future by the contract's current pricing.
Implied Volatility (IV) Percentile is a measure used to compare the underlying's current IV (as an average of all available options contract pricing) to historic values, which range defaults to the past year.