Stock Implied Volatility Compared with Realized Volatility

Summary

The discussion distinguishes implied volatility from realized volatility as displayed by trading platforms. Implied volatility is inferred from an option's market price using a pricing model, commonly Black–Scholes. Options across strikes and a shared expiration can form a volatility curve; including multiple expirations produces a volatility surface. The answer therefore describes an option-derived measure, rather than volatility calculated directly from the stock's price history.

Realized volatility is described as the standard deviation of stock closing-price changes over a chosen historical window, such as a month or a year, and is typically annualized. Implied volatility is forward-looking in the sense that it reflects option prices and market expectations over the option's horizon, but it is not the same as subsequently realized volatility. The example notes that uncertainty around earnings can raise implied volatility. The explanation is brief and does not specify a platform's precise calculation or convention, so displayed stock-level implied volatility may depend on the vendor's methodology.

Key ideas

• Implied volatility is inferred from option prices through a pricing model.
• Options across strikes and expirations can be summarized as a volatility curve or surface.
• Realized volatility measures historical price variation over a selected period and is commonly annualized.
• Implied volatility reflects forward-looking option pricing but does not equal future realized volatility.
• Event uncertainty, such as an earnings announcement, can increase implied volatility.

Tags

# Implied Volatility of a stock?


# Implied Volatility of a stock?












I know that implied volatility is the result of backing volatility out of any one of the many options pricing calculations.

However, I've noticed that on ThinkorSwim and other platforms they also have implied volatility, and historical volatility of the stock itself.

Is this a weighted average of IV of all active contracts, or do they actually mean a rolling volatility like yang-zhang? "Implied Volatility" of a stock itself seems like a weird concept to me, mostly because you can trivially calculate volatility directly.

## Answer by nimbus3000 (score 3)

https://quant.stackexchange.com/a/32488

Implied Vol is model dependent, generally the black scholes model. If you have many options, with the same expiry, you get vol curve. you can also get vol surface if you have options with different expiry in addition to strikes.

Realized vol generally is the standard deviation of closing prices of the stock for a number of days. So you can have 1-month realized vol or 1 year realized vol. These numbers are annualized.

Also, implied vol is not equal to realised vol. IV is sort of a forward looking measure. Imagine what happens during results season when the IV of options increase due to uncertainty of the announcement.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.