Not financial advice. Options involve risk and are not suitable for all investors. Data is delayed up to 15 minutes.
Solve for implied volatility from an option's market price using the Black-Scholes model.
Implied volatility represents the market's consensus expectation of future volatility. Unlike historical volatility (which looks backward), IV is forward-looking and is embedded in option prices. When demand for options increases, IV rises; when demand falls, IV drops.
The Black-Scholes model takes volatility as an input to produce an option price. Implied volatility reverses this: given the market price, it solves for the volatility that makes the model's output match. This calculator uses Newton-Raphson iteration with vega (the option's sensitivity to volatility) as the derivative.
In practice, IV varies across strike prices, creating a "volatility smile" or "skew." Out-of-the-money puts often have higher IV than ATM options, reflecting demand for downside protection. This pattern is especially pronounced in equity markets.