Implied Volatility (IV)

Implied Volatility, often abbreviated as IV, is a critical concept in options trading. It's a metric that reflects the market's expectation of future volatility in the price of the underlying asset.

Specifically, implied volatility is the level of expected volatility that, when used in an options pricing model (like Black-Scholes), results in a theoretical value for the option that is equal to the current market price of the option. In other words, it's the volatility "implied" by the market price.

Higher IV values mean that the market expects the underlying asset to have larger price swings, which can increase the potential for profit or loss. As such, options with high IV are often more expensive than those with low IV.

IV does not provide an indication of the direction of the change in price, just the magnitude of the expected change. It is one of the key parameters considered by traders when buying or selling options.