Implied Volatility (IV)

Implied volatility (IV) is the level of future price movement that current option premiums imply, given a pricing model — it’s “backed out” from the market price of an option, rather than calculated directly from the underlying asset’s historical price behavior. Higher IV means the market is pricing in a wider expected range of future price moves, which makes options more expensive (higher premiums) on both the call and put side.

This is the piece of options pricing that has no equivalent in perpetual futures trading. A perp’s price is anchored to spot through funding; nothing about a perp requires the market to price “how much will this move,” because a perp doesn’t have a premium or an expiry for that estimate to attach to. Options do, which is a meaningful part of why options require a different way of thinking than perps — see our options vs perps guide.

IV tends to rise ahead of known catalysts (a major unlock, a macro event, an expected volatile period) and fall during calm stretches — a pattern sometimes called “IV crush” when volatility that was priced in fails to materialize and options premiums collapse afterward even if the underlying price didn’t move much. Sellers of options are, structurally, selling implied volatility; buyers are paying for it. Understanding whether current IV looks cheap or expensive relative to what’s likely to actually happen is the core skill options traders develop that perp traders never need. See The Complete Guide to Onchain Options for how this fits into the broader picture of pricing and risk.