Implied Volatility In Options

Implied volatility in options refers to the market's expectation of how much the price of the underlying stock will fluctuate during the life of the option. It is an important factor that influences an option’s premium (price). When implied volatility increases, the option's premium tends to rise as well because higher volatility implies a greater chance for the option to end up in profit (or 'in the money'). Essentially, changes in the underlying stock’s price over time affect implied volatility, and when implied volatility rises, the option's premium also typically increases due to the higher perceived risk.