Implied Volatility (IV)

Implied volatility is the amount of future movement the options market is pricing into a stock, expressed as an annualized percentage and backed out from option prices themselves. IV of 40% on a $100 stock implies roughly a one-standard-deviation range of +/- $40 over a year, or about +/- 2.5% on a typical day (40% divided by the square root of 252 trading days).

IV is the price of optionality. It rises into known events — earnings, FDA decisions, CPI prints — and falls when the uncertainty resolves. Comparing a stock's current IV to its own history (IV rank or percentile) tells you whether options are rich or cheap; a 60% IV is expensive for a utility and calm for a small-cap biotech.