- Implied volatility is the market’s forecast of the likely movement in the price of a security.
- IV is often used to value options contracts when high implied volatility results in options with higher premiums and vice versa.
- Supply and demand, as well as time value, are the main determinants for calculating implied volatility.
- Implied volatility usually increases in a bear market and decreases in a bull market.
- While the IV helps quantify market sentiment and uncertainty, it is purely based on prices, not fundamentals.