Implied volatility
Implied volatility is a metric used in options trading that reflects the market's expectations of how much the underlying asset's price will fluctuate over a given period. It is derived from the current price of the option and is often seen as a gauge of market sentiment and uncertainty. Higher implied volatility generally indicates a greater expected movement in the underlying asset's price, leading to more expensive options. Conversely, lower implied volatility suggests smaller expected price swings, resulting in less expensive options. Understanding implied volatility helps traders assess an options trade's potential risks and rewards.