Volatility (Implied)

Implied Volatility is computed (“reverse-engineered”) from options prices, using Black-Scholes formula. Black-Scholes formula, originally designed to compute the price of an option using volatility as an input, is re-arranged, using actual market prices of the options, calculating volatility the given price implies (hence the name). Implied Volatility is the market’s expectation of future volatility of a given asset, and can substantially differ from historical volatility.