Implied volatility (IV) is the market’s forward-looking estimate of future movement (priced into options); realized volatility (RV) is how much the underlying actually moved. The gap between them is informative (see realized vs implied).

Implied volatility

IV is derived from option prices — the market’s expectation of future movement. High IV means expensive options (the market expects big moves); it spikes before events and in fear. It’s what you pay for when buying options.

Realized volatility

RV (a.k.a. historical volatility) measures how much price has moved — a backward-looking fact. Comparing IV to RV tells you if options are “expensive” (IV > RV, you’re paying up for expected moves) or “cheap” (IV < RV, moves have exceeded what’s priced). Premium sellers love high IV vs RV; buyers prefer the reverse.

Implied is the forecast; realized is the outcome. When implied runs far above realized, options are richly priced — and the seller has the edge.

The takeaway

IV (expected, forward, what you pay) vs RV (actual, backward). The relationship tells you whether options are rich or cheap. For a 0DTE trader, IV matters most going into events (crush risk); on expiration day itself, vega is tiny so IV’s direct impact fades.