F&O Classroom: What is Implied Volatility and Why is it Important in Options Trading? Know these 5 things of great use

F&O Classroom: What is Implied Volatility and Why is it Important in Options Trading?  Know these 5 things of great use

Options trading is becoming increasingly popular and with time more people are trying their hand at it than ever before. However, most people end up incurring losses in options trading and the biggest reason for this is the lack of correct information. If you also want to try your hand in options, then today we are going to tell you 5 important things related to Implied Volatility ie IV… Whether or not or whether a book is good or not, must have been decided on the basis of reviews. If the reviews are not good then people leave it. However, this scale does not always prove to be accurate. Our decision is not based only on reviews but is also influenced by our expectations, likes and dislikes. Similarly, in the stock market, investors keep expectations from a stock or index, which is not necessarily based on past performance. These expectations about how a security’s price might move are called Implied Volatility or IV. Implied volatility is one of the key indicators of options trading and can be found on the NSE website under Options Chain.

What is Implied Volatility (IV)?

Implied Volatility That is, the IV reflects the expectations of traders or investors regarding the movement of prices of implied assets such as stocks and indices over a given period of time.

How does the IV affect the price?< /h3>

The implied volatility depends on the demand and supply in the options market. If there are more buyers than sellers for an options contract, the price or premium as well as the implied volatility will increase. And if there are fewer sellers and more buyers, the option contract price or premium will fall and its implied volatility will also fall.

How to use IV in trading?

IV Can be used as a key indicator for trading. If the implied volatility and premium are high, then traders are usually pushing to sell options and this helps them earn higher premiums. Whereas if IV and premium are low, then traders prefer to buy options because they have to pay less premium.

How is it different from historical volatility?

Volatility There are two types – Historical and Implied. Implied volatility is an indicator of future expectations, while historical is a record of past fluctuations.

How to track implied volatility?

India Vix (VIX) There is a volatility index, which is available on NSE. It shows or tracks the implied volatility of the Indian stock markets. If the Vicks index is high, there is more scope for volatility in the market, whereas if the Vicks is low, it indicates stability of the market.


Puneet Maheshwari, Director, Upstox

Dis‍K‍Lemmer- The author is the director of Upstox‍ The views published are his personal. Before investing in the stock market, definitely take the advice of your financial advisor.

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