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Few Facts About Implied Volatility: Infographic


The following infographic describes the facts about implied volatility, where does it come from and how to calculate implied volatility. Implied volatility is an estimated volatility of a security’s price. It is very helpful in calculating the probability and is used to adjust the risk control and trigger trades.

Implied volatility increases when the market is bearish. On the other hand, it decreases when the market is bullish.

 

Implied volatility can be derived from the cost of the option. If there are no options traded on a given stock, there would be no way to calculate implied volatility. If there is an increase in implied volatility after a trade has been placed, the price of options generally increases. This is good for the option owner whereas bad for the option seller. If implied volatility decreases after the trade is placed, the price of options also decreases. This is good for the option seller and bad for the option owner.

 

In order to know more about implied volatility, please refer the given infographic.

 

 

steady_options_2.jpg

 

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Guest i dont understand IV

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"Implied volatility increases when the market is bearish. On the other hand, it decreases when the market is bullish" 

I don't think you really mean this do you? IV is only high when the market is going up/everyone is buying? lol

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Actually I do mean it. Put SPX and VIX charts together, you will see they have inverse correlation. Follow SPX for few days, and you will see that most days when the markets go down VIX goes up and vice versa.

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On ‎06‎.‎01‎.‎2017 at 2:26 AM, Kim said:

Actually I do mean it. Put SPX and VIX charts together, you will see they have inverse correlation. Follow SPX for few days, and you will see that most days when the markets go down VIX goes up and vice versa.

Not all securities have inverse correlation with IV. GLD and TLT are positively correlated with their IV in most cases, right? ,-)

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TLT and GLD are usually (not always) negatively correlated with SPX, so yes, in many cases, when IV is rasing, TLT and GLD are raising as well. 

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