A TRADER’S GUIDE TO IMPLIED VOLATILITY

What is implied volatility?

Implied volatility describes how much traders believe a market will move on an annualized basis. It is a key variable that is used to price options on stocks, currencies, commodities, and alternative investment assets.

Since an option measures the likelihood that an asset will be “in the money” by the expiration date, traders need a variable that describes this probability. Implied volatility is a variable used in an options pricing model that helps option traders generate an option premium.

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