Implied Volatility - IV

The estimated volatility of a security's price.

Investopedia Says:
In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.

In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the Black-Scholes Model.

Implied volatility is sometimes referred to as "vols."

Related Links:
An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them. Options Basics Tutorial
Learn why option spreads offer trading opportunities with limited risk and greater versatility. Option Spread Strategies
Learn how to calculate a metric that improves on simple variance. Exploring The Exponentially Weighted Moving Average
Find out why more and more investors use options prices offered up by the CBOE to determine market risk. Gauging Sentiment with the Volatility Index
The mystery of options pricing can often be explained by a look at implied volatility (IV). The ABCs of Option Volatility
This very useful volatility index of the CBOE tells investors about the mood of the stock market. Getting a VIX on Market Direction
Try this approach to covered calls to increase your potential for profit in any market. An Alternative Covered Call: Adding A Leg

Degree of volatility implied by the market price of an option. Some options traders deal in volatility, buying options when their implied volatility is low and selling options when their implied volatility is high. By using the Black Scholes Model an investor who knows the option price, the strike price and other factors, can determine the price volatility.