Implied Volatility - IV
The estimated volatility of a security's price.
Investopedia Commentary
In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the Black-Scholes Model.
Implied volatility is sometimes referred to as "vols."
Related Links
Options Basics Tutorial
Gauging Sentiment with the Volatility Index
The ABCs of Option Volatility
Getting a VIX on Market Direction
See also: Black-Scholes Model, Expiration Date, Options, Volatility, Volatility Smile
Also spelled: IV