📊 Implied Volatility vs. Historical Volatility

These metrics help traders compare expected vs. realized volatility over different time horizons.

🔮 Implied Volatility (IV)

IV30, IV60, IV90, ... represent the market’s expectation of volatility over the next 30, 60, or 90 calendar days, derived from option prices.

• IV30: Weighted average implied volatility of near-the-money options expiring in ~30 days.
• IV60: Same as above, but for ~60-day expirations.
• IV90: Same, for ~90-day expirations.

These metrics help traders compare short-term vs. long-term volatility expectations. For example:
IV30 = 28%, IV90 = 35% → Market expects more uncertainty over the next 3 months than the next 30 days.

Calculation:

1. Collect option prices for expirations closest to 30 days.
2. Use an option pricing model (e.g., Black-Scholes) to back out implied volatility for each strike.
3. Weight near-the-money strikes more heavily.
4. Average the implied volatilities to get IV30.

📈 Historical Volatility (HV)

HV30, HV60, HV90, ... represent the realized volatility of the underlying asset over the past 30, 60, or 90 calendar days.

• HV30: Standard deviation of daily log returns over the past 30 days, annualized.
• HV60: Same, over 60 days.
• HV90: Same, over 90 days.

Calculation:

1. Calculate daily log returns: ln(Pt / Pt-1).
2. Compute standard deviation of returns over the desired window (e.g., 30 days).
3. Annualize: HV = σ × √252 (assuming 252 trading days).

📌 Comparison Tips

• IV > HV → Market expects more future movement than recent history.
• IV < HV → Market expects calmer conditions ahead.
• Use IV/HV ratios to spot overpriced or underpriced options.

Key Differences

Key Insights

• IV tends to rise before earnings or major news events.
• HV spikes after large price moves but lags behind IV.
• Comparing IV vs. HV helps identify overpriced or underpriced options.
• IV skew across expirations (IV30 vs. IV90) reveals sentiment and hedging pressure.