What is implied volatility and how does it affect option pricing?

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Option premiums are sometimes very expensive even for the same strike. Is this due to implied volatility?

#options-and-futures

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Wolf Alpha

Trader · 15 days ago

IV (Implied Volatility) is the market's forecast of future volatility, embedded in option prices. High IV = expensive options. Low IV = cheap options. IV spikes around events (earnings, RBI policy, elections).

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Wolf Alpha

Trader · 15 days ago

Strategy: buy options when IV is low (cheap), sell options when IV is high (expensive). After a high-IV event passes, IV typically collapses (IV crush) — option buyers lose even if directionally correct.

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What is implied volatility and how does it affect option pricing?

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