Why Options Are Commonly Quoted by Implied Volatility

Summary

The discussion explains why options markets often communicate prices as implied volatility rather than as cash amounts. Because the underlying price moves, a fixed option premium can quickly become stale; quoting volatility provides a more stable way to express a market view and can simplify negotiation for a specified option exposure. Implied volatility also helps compare options on the same underlying when their strikes, expirations, or contract types differ, where their raw premiums are not directly comparable.

The replies add a display precision issue: for far out-of-the-money or otherwise volatility-insensitive options, meaningful premium differences may disappear when prices are rounded, while the corresponding implied volatilities can still distinguish quotes. These points describe practical quoting and comparison benefits, not a claim that volatility is a separate observable value. Given a pricing model and inputs, price and implied volatility map to each other; cross-underlying comparisons are less certain because differences in products and assumptions can make those volatility figures less directly comparable.

Key ideas

• Implied volatility can provide a more stable quote as the underlying price changes.
• Volatility quotes make it easier to compare premiums across strikes and expirations on one underlying.
• For options with low sensitivity to volatility, rounded prices may hide differences visible in volatility quotes.
• Price and implied volatility correspond through a pricing model, so implied volatility is a quoting convention with practical advantages.
• Comparisons across different underlyings require more care than comparisons within one underlying.

Tags

# Implied volatility quote vs. Price quote


# Implied volatility quote vs. Price quote












After reading this and this, I still don't understand the reason for why options are quoted in terms of implied volatilities. My question is: can somebody give an example that shows the value/usefulness of using IV instead of option's price as a quote? In my understanding there is one-to-one correspondence between the two. Assume I give you the price instead of IV, what exactly will you not be able to do?

## Answer by JoshK (score 2, accepted)

https://quant.stackexchange.com/a/58764

The reason for people quoting in IV is because spot is moving! If someone asks for a quote in 50 delta SPX, that will move by the millisecond. But if you just quote it in vol terms then that is pretty static. It just makes getting a trade done simpler.

## Answer by mikea (score 4)

https://quant.stackexchange.com/a/58763

IV quotes let you compare prices of options on the same underlying with different strikes, expirations and types.

It is hard to say if 2.50 for 200@45dte is more or less than 3.70 for 150@90dte. Their implied volatility is directly comparable.

Some claim that you can also compare IVs for options with different underlyings but I’m less sure about that.

## Answer by Jesper Tidblom (score 1)

https://quant.stackexchange.com/a/58788

I could also add that options at more extreme strikes can be very insensitive to the volatility. Unless you use a ridiculous number of decimals for the option prices in that situation, those prices would then look the same on the market screen, while the volatilities for the options might differ more substantially. So for this numerical reason it is also more practical to give the volatilities instead of the option prices.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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