Basics

Implied Volatility

As soon as options exist on a product, there is also implied volatility embedded in the option price. It is not historical movement. It is the market's current pricing of future uncertainty.

Core Idea

What implied volatility really is

Implied volatility, or IV, is the market-implied future movement embedded in an option price. It is not directly observed. It is backed out from traded option prices.

The key point is that there is not just one IV for the whole market. There is IV on indices, on single stocks, and even on commodity-related ETFs wherever listed options exist.

1. Indices

The best-known volatility indicator is the VIX. It measures the market's expected 30-day volatility based on SPX options. On your homepage, that world is already central in the dashboard.

Around the VIX there is an entire term family. The most relevant members are:

  • VIX1D 1-day volatility based on SPXW options. TradingView: VIX1D
  • VIX9D 9-day S&P 500 volatility.
  • VIX the classic 30-day indicator. TradingView: VIX
  • VIX3M the 3-month version. TradingView: VIX3M
  • VIX6M the 6-month version. TradingView: VIX6M
  • VIX1Y the 1-year version.

VVIX: volatility of the VIX itself

One especially interesting indicator is VVIX. It does not measure S&P 500 implied volatility. Instead, it measures the expected volatility of the VIX itself, so effectively volatility of volatility.

When VVIX rises sharply, it often signals stress inside the volatility complex. TradingView: VVIX

VDAX as the German counterpart

The German equivalent in the DAX world is the VDAX, or in practice today often VDAX-NEW. It reflects the volatility implied by the DAX options market.

TradingView: VDAX-NEW / DV1X

2. Implied volatility on stocks

For single stocks there is usually no universal benchmark index as famous as the VIX. Instead, IV is read directly from the option chain of the stock itself.

That still makes it highly useful, because it quickly shows whether option premiums on a given stock are historically rather cheap or expensive. For covered calls, cash-secured puts, and spreads, that matters a lot.

3. Commodities and commodity-related volatility indices

In commodities there are also derived volatility indices. Typical examples are:

  • OVX for oil, derived from options on the USO ETF.
  • GVZ for gold, derived from options on the GLD ETF.
  • VXSLV for silver, derived from options on the SLV ETF.

These indices are very useful as observation tools because they show how expensive volatility currently is in those markets.

The practical limitation is that, unlike the VIX ecosystem, these volatility indices themselves are generally not used as widely established retail option underlyings. In practice, they are more useful as regime indicators than as instruments you trade options on directly.