Definition
Implied vs Historical Volatility
Implied volatility is the market's forecast of future swings from option prices; historical volatility is the actual past movement.
Implied volatility (IV) is forward-looking, derived from current option premiums, and reflects what traders expect ahead. Historical (or realised) volatility is backward-looking, measured from actual price changes over a past window. Comparing the two shows whether options are expensive or cheap relative to how the underlying has really moved.
Indian option traders sell premium when IV sits well above realised volatility (options overpriced) and buy when IV is below it (options cheap). The gap between the two is a key edge in volatility trading on Nifty, Bank Nifty, and stocks.
Related terms
- VolatilityVolatility measures how much and how quickly a price moves up and down — higher volatility means bigger, faster swings.
- IV Percentile / IV RankIV rank and IV percentile show where today's implied volatility sits relative to its own range over the past year.
- India VIXIndia VIX is the volatility index that measures the market's expectation of near-term volatility, often called the 'fear gauge'.
- Implied VolatilityImplied volatility (IV) is the market's forward-looking estimate of how much a stock or index will swing, backed out from current option prices and expressed as an annualised percentage.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.