Historical volatility (also called realized volatility or statistical volatility and often designated by “HV”) is the actual volatility realized by the underlying security, measured in terms of the magnitude of recent price movement. Specifically, HV is the annualized standard deviation of an asset. This figure is stated as a percentage of the asset price. Even to non-option traders, HV is a helpful guide to comparing the volatility of a stock with another stock or itself over time. For example, a stock with a 20 percent HV is less volatile than one with a 40 percent historical volatility. Also a stock with a current HV of 50 percent is more volatile than it was if its HV was 30 percent at some time in the past.

While HV looks back at actual asset prices, implied volatility (or “IV”) looks forward. IV is generally interpreted as the market’s consensus expectation for the future volatility of an asset. This figure is also stated in percentage terms and can be derived from the price of an option. Specifically, it is the expected future volatility of the underlying implied by the price of its options. For example, a stock with a 20 percent IV is expected (by the market as a whole) to experience less volatility than a stock with a 40 percent IV. The IV of an asset can also be compared with itself over time. For example, if a stock currently has an IV of 50 percent versus 30 percent in the past, the market now expects the stock to be more volatile than it previously did.