Implied Volatility (IV) is the market's consensus expectation for how much a stock's price will move over the life of an option contract. It is expressed as an annualized percentage. A stock with 30% IV is expected to move roughly 30% in either direction over the next year (about ±1.5% per week).
IV is the key driver of option premium prices. When IV is high — often because of upcoming earnings, broader market fear, or geopolitical events — option premiums are expensive and rich. When IV is low, premiums are thin. Wheel strategy traders deliberately seek high-IV environments to sell richer premiums.
Unlike historical volatility (which looks backward at how much the stock actually moved), implied volatility is forward-looking — it is derived from the current market prices of options themselves. Historically, implied volatility tends to overestimate actual realized volatility, which is the core edge of option sellers.