Lesson 6 of 8 · 2 min

Implied volatility

The market's price for future movement — and the VIX as its best-known summary.

Definition

Implied volatility (IV) is the volatility level that makes an option-pricing model match an option's market price. It's the market's price for future movement, not a forecast that has to come true.

The VIX

The VIX summarises 30-day implied volatility from S&P 500 options. Higher VIX generally goes with larger expected daily ranges in ES and NQ.

Skew and term structure

Skew — index puts usually carry higher IV than calls at the same distance from price, reflecting demand for downside protection.
Term structure — IV across expirations. Short-dated IV above long-dated IV often signals near-term stress or a known event.

Key Insight

IV often rises into scheduled events and drops after them (the "vol crush"), whatever the direction of the move.

Trading implication

Use the volatility regime to set expectations: wider stops and smaller size when implied ranges are large, and an honest acceptance that "normal" moves change with it.

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