Implied volatility
Implied volatility (IV) is the size of price swings the market expects, worked out from option prices. High IV means expensive options and expectations of big moves.
How it works
IV is not measured directly. You take an option's market price and find the volatility that, plugged into a pricing model (usually Black-Scholes), produces that price. The result is an annualized percentage, for example 55%.
You can roughly turn annual IV into a daily move by dividing by the square root of trading days. Crypto trades every day, so divide by √365 ≈ 19.1. An IV of 57% implies a typical move of about 3% a day. It says nothing about direction, only size.
IV rises before major events and during panics, then drops once the event has passed (an IV crush). Traders compare IV with realized volatility, how price actually moved: if IV is well above it, options are relatively expensive; if below, relatively cheap.
BTC options trade at 60% IV. Expected daily move: 60% / 19.1 ≈ 3.1%. At a $60,000 price that is about ±$1,900 a day. By this estimate, BTC should close within that range on roughly two days out of three.
The mistake is buying options right before a big event when IV is already high. Even if you get the direction right, IV drops after the event, the premium deflates, and your gain can be smaller than expected or turn into a loss. Look at the IV level against its usual range, not just at the option price.
Questions and answers
What is implied volatility in simple terms?
It is how much movement the market expects, baked into option prices. The higher the IV, the more expensive both hedges and option bets become.
How is implied volatility different from historical volatility?
Historical volatility is calculated from past prices, while IV comes from current option prices and reflects expectations about the future.
Does implied volatility show where price will go?
No. IV only tells you the expected size of swings, not the direction. High IV can come before a rally or a drop.
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Updated: 2026-10-19