Implied volatility is a measurement tool to know how much the price changes in either direction. Volatility is one of the important factors, which is taken into account while pricing options. It is not possible to predict the future volatility, so one can try to estimate it. The prediction is done by taking into consideration the historical (past volatility) of a certain amount of time and from that future movement of underlying is predicted.

       The other way to calculate or estimate the implied volatility is by entering all the parameters into the option pricing model and solving it. Like Black and Scholes model use to get the value of option. Now one can go reverse by putting the current value of option in the model and get the value of implied volatility.

       In simple words, implied volatility is the market’s prediction or estimation about how much the underlying fluctuate from the present until the option’s expiration. When volatility is high, option are relatively expensive, when volatility is low, options are cheap.