Implied volatility: the market's own forecast, read backwards out of a price
Implied volatility is the only number in an option chain that nobody quotes and everybody trades. It is not observed and it is not forecast — it is solved for, by asking what volatility would make a pricing model agree with the price already on the screen. Everything else in this section is a consequence of that one sentence.
What is implied volatility? Implied volatility is the volatility figure that, when fed into an option pricing model, reproduces the option's current market price exactly. It is a re-expression of price, not a prediction, and because every strike and every expiry prints its own implied volatility, the collection of them forms the smile, the skew and the volatility surface.
Implied Volatility
IVImplied volatility is the volatility figure that, when fed into an option pricing model, makes the model output the option's current market price exactly …
How IV is Calculated
How IV is calculated comes down to inversion: you fix every observable input to a pricing model and search numerically for the single volatility that make…
Why IV Changes
Why IV changes is a question about order flow, not opinion: implied volatility rises and falls because the demand for options relative to their supply ris…
IV Expansion
IV expansion is a sustained, persistent rise in implied volatility in which the market re-rates the entire distribution of future outcomes upward and keep…
IV Crush
IV crush is the sudden, one-print collapse of implied volatility that occurs the instant a scheduled event resolves, as the option stops charging for unce…
Event Volatility
Event volatility is the portion of an option's implied volatility attributable to a single scheduled event — such as an RBI decision or the Union Budget —…
Earnings Volatility
Earnings volatility is the pronounced rise and subsequent collapse of a single stock's implied volatility around its quarterly results release, driven by …
Volatility Smile
The volatility smile is the U-shaped curve you get when you plot each strike's implied volatility against its strike price, in which both out-of-the-money…
Volatility Skew
The volatility skew is the downward-sloping implied-volatility curve that equity indices print, in which out-of-the-money puts are systematically dearer —…
Volatility Surface
The volatility surface is the two-dimensional map of implied volatility plotted over both strike and time to expiry — the full object that any single quot…
Sticky Strike
Sticky strike is the volatility-surface regime in which each strike keeps its own implied volatility fixed as spot moves, so the curve stays glued to stri…
Sticky Delta
Sticky delta is the volatility-surface regime — also called sticky moneyness — in which the entire smile slides sideways along with spot, so the at-the-mo…