What this unit covers
Tell implied volatility, what the market currently expects, from realised volatility, what actually happened, and see why the gap matters to an options trader.
By the end you will be able to
- Explain what implied volatility represents as a forward-looking market expectation.
- Explain what realised volatility represents as a backward-looking record of past movement.
- Recognise that a gap between the two is normal and use it to judge confidence, not to predict.
How it starts: The Move That Never Came
- Traders expect a sharp move in the index before results week.
- Options are pricing in a possible swing of 6 percent this week.
- By Friday the index has moved only 1 percent.
Words you will meet
- Implied Volatility
- The market's current, forward-looking guess about how much a price could move, priced into options.
- Realised Volatility
- The backward-looking, measured record of how much a price actually moved in the past.
- Option Chain
- A listing of an option's available contracts and prices, including figures like implied volatility.
- Volatility
- The degree to which a price fluctuates, whether expected or already observed.
In this module: Volatility & Option Chain
- Implied and Realised Volatility (this unit)
- India VIX and Volatility Context
- Reading an Option Chain
- Open Interest Context and Its Limitations
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