A measure of how much investors expect a stock's price to move up or down in the future. Higher implied volatility means the stock is expected to fluctuate more, which typically makes options more expensive. Lower implied volatility means the stock is expected to be stable, which makes options cheaper.
Stock A has an implied volatility of 15 percent, meaning investors expect relatively small price swings. Stock B has an implied volatility of 50 percent, meaning investors expect big price swings. An option on Stock B will be more expensive than an identical option on Stock A, even if both stocks are priced the same, because there is greater potential for the option to become profitable.
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