Implied volatility

Implied volatility is the number that makes a pricing model return the price an option is already trading at. It is where every premium you collect comes from, and it is the part of options that most easily turns into a lecture with no trade in it. Ten articles below, all of them running on one chain: Nike, June 3, $74.20, with earnings three weeks out.

What implied volatility actually isImplied volatility is the number that makes an option pricing model return the price the contract is already trading at. What it means in daily moves and dollar ranges, why it is not a forecast, and the four conventions that make two platforms disagree.
Realized volatility, and how to compute itRealized volatility is measured from price history rather than solved from option prices. How to compute it, why the lookback window changes the answer more than anything else, and the one job it is actually good for.
Implied against realized, and the gap between themImplied volatility runs above subsequent realized volatility most of the time, which is the structural reason selling premium works at all. What the gap was worth on one Nike straddle, why it exists, and the comparison mistake that makes it look bigger than it is.
IV rank, IV percentile, and what both of them missIV rank uses two data points and IV percentile uses 252, which is why they disagree. Both formulas worked on the same Nike reading, where they print 41 and 78, and both are wrong for the same reason nobody mentions.
The volatility smile, and why equities smirk insteadBlack-Scholes assumes one volatility per stock and the market has never agreed. What the curve across strikes actually looks like on an equity name, why it is a lopsided smirk rather than a smile, and what changed in 1987.
Put skew, and what it is worth to a sellerOn one Nike expiry the 0.17 delta put pays $112 and the 0.17 delta call pays $74, for strikes almost the same distance from the stock. Where the extra $38 comes from, and whether a seller should treat it as edge.
Reading the term structure across expiriesImplied volatility varies by expiry as well as by strike. One Nike chain shows 26 percent at 17 days and 41 percent at 30, purely because an earnings date sits between them. How to read the curve and pick an expiry off it.
IV crush, and why it is only half the tradeImplied volatility collapses the morning after a print, and the collapse is predictable. Four possible opens on one Nike position show why the crush is real and why direction still decides who gets paid.
VIX against single-name implied volatilityVIX is a 30-day model-free reading of S&P 500 index options, not the implied volatility of any stock. Why index volatility runs far below the average component, worked with the correlation arithmetic, and what a single-name seller should do with the number.
Four ways to measure the same volatility, four answersClose-to-close uses two prices a day and throws away the rest. Parkinson, Garman-Klass, Rogers-Satchell and Yang-Zhang use more of the bar. On one Nike window they span nearly six volatility points, which is wider than the edge you are trading.

Read them in this order

New to this: what the number actually is, then how to measure what the stock really did, then the gap between them that pays you. Those three are the whole idea.

Already selling and want the pages that change decisions: reading two numbers off the chain instead of trusting one, why the put side pays 53 percent more at the same delta, and the estimator choice that is three times larger than your edge.

One chain, ten articles

Every number in this series comes off a single illustrative snapshot: Nike on June 3 at $74.20, with a June 26 earnings print sitting inside some expiries and not others. That one fact produces the term structure kink, the corrupted IV rank, and the crush, which is three pages arguing from the same table. Prices are worked examples rather than quotes, and the deltas and premiums were computed rather than invented.

What this series will not tell you

That high implied volatility is an opportunity. It is a price, set by people who can also see the earnings date, and most of the time it is roughly right. The edge in selling volatility is real and it is about two points wide, which is smaller than the spread you pay on a badly executed fill.

It will not tell you that IV rank above 50 is a signal either. On a stock with quarterly earnings that mostly measures how many days until the next print, and the page on it works through exactly how the number moves without anything happening.

And it will not explain how the OptionsKing confidence score is computed. Two of its inputs share names with pages in this series. What the engine does with them, what they are worth and where its thresholds sit stay private: the score feeds a ranking and the app shows you the highest-ranked handful of what it found, and how it works covers what that guarantees.

Questions people actually ask

What is implied volatility in one sentence?

The volatility figure that makes a pricing model return the price an option is already trading at, quoted as an annualized standard deviation so that a $74 stock and a $600 one can be compared.

Is high implied volatility good for option sellers?

It pays more and it is priced that way for a reason. The question worth asking is whether the volatility is high relative to what this stock normally does, and whether the reason it is elevated is a risk you want to underwrite. The two standard ways of answering the first half disagree with each other.

Why does every strike have a different implied volatility?

Because the market does not believe the model. Downside strikes price a fatter left tail and steady hedging demand, so on the Nike chain in this series the 0.17 delta put carried 44.5 percent and the 0.17 delta call carried 33.2 percent.

How much edge is there in selling volatility?

Less than most people assume. On the worked example, implied ran 1.9 points above realized, worth about $39 on a $540 straddle. Choosing a different realized-volatility estimator moves the measurement by 5.7 points, which is three times the signal.