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Volatility
Realized vs Implied Volatility
One is history, one is a forecast. The gap between them is where options are cheap or expensive.
NoVo Options Trading · 2026
Realized volatility (also called historical or statistical volatility) measures how much price actually moved over a past period. Implied volatility (IV) is how much the market expects price to move, derived from current option prices. One is a measurement; the other is a forecast.
The gap between them
The relationship between the two tells you whether options are cheap or expensive relative to how much the underlying is really moving. When IV sits well above realized vol, options are pricing in more movement than is happening - expensive premium. When IV is below realized, options may be underpricing the actual movement - potentially cheap.
Why it matters for options
Option buyers effectively bet that realized volatility will exceed the implied volatility they paid for. If you pay for 20% implied and the underlying only delivers 12% realized, you overpaid - the extra premium bleeds away, much like an IV crush. Sellers bet the opposite. The IV-vs-realized gap is the core edge (or trap) in volatility trading.
Buy an option and you're betting reality will be more volatile than the price you paid assumed.
The practical use
Comparing implied to realized - alongside IV rank - tells you whether you're buying volatility cheap or dear before you enter. Systematic approaches care deeply about this: paying up for inflated IV is one of the quietest ways a "correct" directional call still loses money.
More on this: Implied vs Realized Volatility: Expected vs Actual · Why Did Implied Volatility Drop and Sink My Option?
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.