Implied Volatility Definition - For Option Traders

TradingFunda

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Implied Volatility Definition
Implied Volatility is the expected volatility in a stock or security or asset. In simple terms, its an estimate of expected movement in a particular stock or security or asset. The implied volatility is high when the expected volatility/movement is higher and vice versa. This expected volatility may be higher due to a variety of reasons like corporate announcements, macro economic announcements, financial result updates, etc. Due to these, the markets may expect a knee jerk reaction in the prices of the underlying asset which shall result into heightened activity and high volatility in prices i.e. a higher IV or implied volatility. Implied volatility is a very important factor amongst the 5 factors which impact option prices, the others being the asset price, strike price, time to expiry for the contract and the prevalent interest rates.

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