Insights / Volatility
What implied volatility measures
Implied volatility is the level of future movement that current option prices assume. It is worked backwards from the premium, so it reflects what buyers and sellers are willing to pay, not a forecast from any one person.
When implied volatility rises, premiums rise with it, even if the underlying has not moved.
Why it rises before events
Scheduled events such as quarterly results or monetary policy announcements can move prices sharply. Sellers ask for more premium to carry that risk, and buyers often accept it, so implied volatility tends to climb in the days before.
What often happens afterwards
Once the event passes, the uncertainty it carried is gone. Implied volatility frequently falls, and premiums can drop even when the underlying moves in the expected direction. This is sometimes called a volatility crush.
An option bought just before an event can therefore lose value on a correct view.
How our notes handle it
When a scheduled event falls inside the expiry a note refers to, the note lists it under risks and states whether the idea depends on the event outcome.