# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Implied Volatility

Implied volatility is a measure of the "riskiness" of the underlying security. Implied volatility is the primary measure of the "price" of an option--how expensive it is relative to other options. It is the "plug" value in option pricing models (the only variable in the equation that isn't precisely known). The remaining variables are option price, stock price, strike price, time to expiration, interest rate, and estimated dividends. Therefore, the implied volatility is the component of the option price that is determined by the market. Implied volatility is greater if the future outcome of the underlying stock price is more uncertain. All else equal, the wider the market expects the range of possible outcomes to be for a stock's price, the higher the implied volatility, and the more expensive the option.


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