Explore Your Options by Jay Kaeppel
IMPLIED VOLATILITY: IS THAT OPTION CHEAP OR EXPENSIVE?
What is implied volatility, how is it calculated, and what does it mean?
In short, implied volatility is a variable calculated by an options pricing model that can tell an options trader whether the price for options on a given security are presently “cheap,” “expensive,” or somewhere in between. This knowledge can be extremely useful in deciding which options strategy to use and/or in managing existing positions ...