Implied Volatility or IV is an integral part of Option premium. As all of us know Option Premium is a calculated figure based on following:

1. Price of the stock/index

2. Strike Price

3. Expiry Date (time to that date)

4. Rate of Interest

5. Volatility

Out of these 5 factors first 4 factors are known and same for each one of us. Volatility figure, however, is not a simple figure as it needs to be calculated and is not readily available anywhere.

On the other hand, the answer to these 5 factors’ calculation is available in the market (market traded Option Premium). So, if we have 4 out of 5 factors and the answer (premium), we can find the last factor of volatility by back calculating the same.

Volatility thus calculated is called Implied Volatility (implied by the price of the opti

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