What is IV- Implied volatility

Implied volatility (IV) is a measure of the market's expectation of a stock's or option's future price fluctuations, derived from the prices of options on that asset. It reflects the anticipated volatility of the underlying asset over the option's lifespan, expressed as an annualized percentage. Higher IV indicates greater expected price swings, often due to upcoming events like earnings reports or market uncertainty, while lower IV suggests more stable price expectations.

IV is calculated using option pricing models like Black-Scholes, where it’s the volatility value that makes the model’s theoretical option price match the market price. It’s not a prediction of direction (up or down) but of the magnitude of potential price changes. Traders use IV to gauge whether options are relatively cheap or expensive, with high IV often signaling overpriced options and low IV suggesting undervaluation. It’s also a key component in options strategies, as it affects premiums and the likelihood of profitable trades.

[NewLeaf2021]

隱含波動率（IV）與實際波動率（realized volatility）的區別簡要翻譯成中文如下：

實際波動率是資產的實際統計波動性，反映其價格波動的幅度（例如，比特幣的實際波動率較高）。隱含波動率則是嵌入期權價格中的波動性，反映了市場交易者對該資產波動性的預期。

曆史上，長期來看隱含波動率通常高於實際波動率。這是因為大多數基金無法為客戶承擔無限風險的空頭期權交易，導致期權市場供需失衡，買家多於賣家，從而推高了隱含波動率。

因此，做空波動率（賣出期權）存在長期正收益（+EV）的優勢，但收益模式類似於撲克中激進型玩家：通過小額頻繁獲利積累收益，但偶爾可能因高風險操作導致全盤虧損。這種風險特征對許多人來說難以承受，但對於能很好控製恐懼心理的人（如《徒手攀岩》中的Alex Honnold），賣出期權是一個正收益策略。

然而，如果像某些公司那樣采用馬丁格爾策略（加倍下注），則極為冒險，堪稱業內俗語“在壓路機前撿硬幣”，遲早會導致賬戶爆倉。

[NewLeaf2021]

By Lit N
But in short, there’s “realized volatility” which is the actual statistical volatility of some asset (how much is moves around… like BTC has a high realized volatility) then there’s “implied volatility” which is baked into the price of the corresponding option price. So it is what the market participants trading those options believe is the volatility of that asset.

IV tends to be higher than realized volatility over long periods of time historically, because most funds can’t put on unlimited risk bets like short options for their clients, so the supply and demand imbalance creates more buyers of options than sellers, and pushes the implied volatility higher than the realized volatility.

So there is permanent edge in being short volatility (short options) but while +EV, your profits are shaped like that of a LAG (loose aggressive) poker player in that you collect a lot of small pots bluffing people, but sometimes blow out your whole stack triple barreling into the nuts.

That sort of risk profile is too much for many people to stomach, but for those that have a strong control of their fear receptors like Alex Honnold from Free Solo, it’s a pretty +EV strategy to sell options.

Where it gets reckless is when you martingale it like the traders at this particular firm. That’s a formula for inevitable blowout. It’s called “picking up nickels in front of a steamroller” in the industry.