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DEFINITION of 'Implied Volatility-IV'. Implied volatility is the estimated volatility of a security's price.
Historical volatility is the annualized standard deviation of past stock price movements. It measures the daily price changes in the stock over the past year. In contrast, IV is derived from an optionâs price and shows what the market âimpliesâ about the stockâs volatility in the future. Implied volatility is one of six inputs used in an options pricing model, but itâs the only one that is not directly observable in the market itself.