Historical (realised) volatility looks backward — how much a stock DID move. Implied volatility looks forward — how much the market EXPECTS it to move, read from option prices. The VIX is the best-known implied gauge.
When implied volatility sits well above recent realised volatility, the market is paying up for protection — often before an earnings report, a Fed meeting, or during a scare. When implied drops below realised, traders may be complacent about risk that is actually present. Example (illustrative): a stock that has bounced around at about 20% realised volatility for months suddenly shows 45% implied volatility with earnings next week — the 25-point gap is the market pricing in a possible big post-earnings jump.
High implied volatility does not mean a stock will fall; it means the market expects a big move either way. Options get expensive right before known events and often cheapen the moment the news is out — the so-called volatility crush.
Historical volatility is backward-looking — how much a stock actually moved. Implied volatility is forward-looking — how much the market, via option prices, expects it to move. The VIX is a well-known implied-volatility gauge.
No. Volatility measures the expected SIZE of moves, not their direction. High implied volatility means the market expects a big move either way, commonly around earnings or macro events.
Because implied volatility rises ahead of a known event that could cause a large move. Once the news is out and uncertainty resolves, implied volatility often falls and those options cheapen.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.