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Understanding Implied Volatility: A Beginner's Guide

SimplQuant TeamFebruary 15, 20248 min read

What is Implied Volatility?

Implied volatility (IV) is one of the most important concepts in options trading, yet it's often misunderstood by beginners. In simple terms, implied volatility represents the market's expectation of how much a stock's price will move in the future.

How IV Affects Options Pricing

Unlike historical volatility, which looks at past price movements, implied volatility is forward-looking. It's derived from the current market price of options and reflects what traders collectively believe about future price movements.

Key Takeaways

  • Higher IV means more expensive options premiums
  • IV tends to spike during uncertain market conditions
  • Understanding IV helps you time your options trades better

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