Implied Volatility and Historical Volatility in Option Pricing

Summary

The post questions a claim that puts are priced using historical volatility while calls use implied volatility, attributing the distinction to differences in liquidity. The reply challenges that framing: implied volatility is obtained by solving an option-pricing model backward from an observed option price, so it describes the market price rather than serving as an independent input used only for one option type.

The response raises a possible source of confusion: in some markets, including foreign exchange options, prices may be quoted in volatility terms. The exchange is brief and does not explain a particular pricing model, volatility surface, or how historical volatility may inform forecasts or valuations. It therefore clarifies the terminology but does not provide evidence for a universal pricing convention based on option type or liquidity.

Key ideas

• Implied volatility is derived from an option’s market price by inverting a pricing model.
• The document rejects the claim that puts universally use historical volatility while calls use implied volatility.
• Some markets may quote option prices in volatility terms, which could explain the reported statement.
• The reply does not specify a pricing model or broader volatility-surface conventions.

Tags

# Implied vs historical volatility in option pricing


# Implied vs historical volatility in option pricing












I discussed recently with a trader who told me that put options are priced using historical vol, and call are priced using the implied one.

My guess would be that as the put option market is much more deep and liquid, using the historical vol could make sens. Conversely for call option considering the much less liquid market.

Any idea on this one? I stuck on having a proper argument on that one. Thanks !

## Answer by Bikenfly (score 0)

https://quant.stackexchange.com/a/70275

I never heard that, and it sounds a bit like circular logic - IV is ALWAYS the vol derived from back-solving from price, so by definition, ALL options are "priced" using IV. I imagine there is a bit more nuance lost in the question you posed? In some assets classes, option prices may quoted in terms of Vol (FX), perhaps that is what the trader tried to communicate to you?

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