11.27What is implied volatility (IV)?
1What is it?
Implied volatility is the volatility the market expects, worked backwards from option prices.
2Why does it exist?
Higher IV = more expensive options. IV often jumps before events (results, budgets, elections) and crashes after ("IV crush"), hurting option buyers even if they guessed the direction right.
3Quick revision
- Expected volatility from prices.
- High IV = costly options.
- IV crush after events.
4Knowledge check
Q1. What happens to IV after results?Show answer
It often falls sharply (IV crush).
Q2. High IV favours buyers or sellers?Show answer
Sellers receive richer premiums (with higher risk).
Q3. Which index reflects Nifty IV?Show answer
India VIX.