Options Whale · Learning library

What is implied volatility?

A price, expressed as volatility

Implied volatility (IV) is the volatility input that makes an option pricing model reproduce an observed option price. It is usually annualized. It reflects priced uncertainty in both directions and does not tell you whether the stock will rise or fall. Model assumptions, dividends, rates, and the quality of the quote all affect the estimate.

Why earnings change the comparison

An expiration containing an earnings announcement includes event uncertainty. Comparing its IV with an expiration that ends before the report can mix two different risks. Comparing today's IV with a full-year range can also miss the normal build-up toward earnings.

Options Whale aligns observations to earnings checkpoints such as T-21 and T-7. The current event-expiration ATM IV is compared with observations at the same checkpoint. A below-median observation is a research input; it does not establish that buying options will be profitable.

What to inspect together

Check the snapshot timestamp, expiration, earnings-session confidence, bid/ask width, and historical sample size. Then inspect term structure and the expected move. A wide spread can make an apparently attractive price impossible to obtain.

Continue the research

Use the volatility screener to compare stored observations, and read the methodology to understand missing-data and publication rules.

Source: OCC's Options Industry Council: implied volatility and option prices.