Section 4 · IV
Implied volatility
The IV column turns each premium into one number that can be compared across strikes.
Sample Indexspot 4,865.00previous close 4,851.00expiry in 14 dayslot 45 unitsall figures invented
| Calls | Puts | |||||
|---|---|---|---|---|---|---|
| IV | LTP | Strike | LTP | IV | ||
| call in the money | 14.86 | 173.05 | 4,700 | 8.05 | 14.86 | |
| call in the money | 14.45 | 130.10 | 4,750 | 15.10 | 14.45 | |
| call in the money | 14.03 | 91.70 | 4,800 | 26.70 | 14.03 | |
| call in the money | 13.62 | 59.55 | 4,850 | 44.55 | 13.62 | |
| 13.21 | 34.80 | 4,900 | 69.80 | 13.21 | put in the money | |
| 12.80 | 17.85 | 4,950 | 102.85 | 12.80 | put in the money | |
| 12.39 | 7.75 | 5,000 | 142.75 | 12.39 | put in the money | |
| 11.98 | 2.75 | 5,050 | 187.75 | 11.98 | put in the money | |
Excerpt: IV next to the last traded price.
On a narrow screen this table scrolls sideways; the strike column is in the middle.
What the IV column is
Implied volatility is the volatility figure that, put into an option pricing model with the strike, spot, time to expiry and interest rate, gives back the option's market price. It is quoted as a percentage a year.
So IV is the price, re-expressed. A higher IV at the same strike and expiry means a higher premium; it is not a separate measurement of the market.
IV across the strikes
In the specimen IV falls from 14.86% at 4,700 to 11.98% at 5,050. A slope like this is often called a skew. In the specimen a call and a put at the same strike share one IV, because both were priced from it.
How the specimen was priced
Every premium in the specimen comes from the Black–Scholes formula with zero interest and no dividends, using the IV shown, spot 4,865.00 and 14 days to expiry, rounded to 0.05. Market premiums come from trades and quotes; here the formula only makes the specimen consistent.