Derivatives
What is Implied Volatility (IV)?
Implied volatility is the market's forecast of how much a stock's price will fluctuate, derived from option prices, it reflects the collective expectation of future uncertainty.
Formula
IV is back-calculated from option prices using the Black-Scholes model. CBOE VIX measures S&P 500 implied volatility (the famous 'fear gauge'); India VIX measures Nifty's IV.
How to Interpret
High IV = expensive options (market expects big moves). Low IV = cheap options (market expects calm). IV typically spikes before earnings and macro events (FOMC, CPI), then collapses after (IV crush).
Typical Ranges
US VIX (CBOE): below 15 = calm, 15–20 = moderate, 20–30 = elevated, 30+ = fear/crisis (50+ = panic, e.g. 2008, March 2020). Or international markets like India: India VIX 10–15 calm, 15–20 moderate, 20–30 elevated, 30+ crisis.