All lessonsLesson 8 · Step 1/5
Implied Volatility, Made Simple
IV is the price of insurance
Imagine buying house insurance. When a hurricane is forecast, insurance gets expensive. After it passes, prices drop.
Options work the same way. Implied volatility (IV) is how big a move the market is expecting. Bigger expected move = pricier options.
Before big news (Fed meeting, CPI, jobs report) IV rises. After the news, it often falls fast.
One-liner
High IV = expensive options. Low IV = cheap options.
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