"Implied volatility" refers to an asset's estimated volatility, which is a characteristic of the asset. The implied volatility indicates the market's expectations for future volatility, but does not indicate the direction in which the asset's price will move. In general, implied volatility increases in a bear market since most investors believe the asset's price will continue to decline. During a bull market, the price drops since traders expect the price to rise in the future. There is a widely held belief that bear markets are more risky than bull markets. The "implied volatility" tool is used by traders to predict future price changes of an asset based on a variety of predictive criteria.

Implied volatility is a crucial concept in the realm of financial markets, particularly in options trading. It represents the market's expectation of future price volatility for a given financial instrument, typically a stock. Unlike historical volatility, which measures past price fluctuations, implied volatility reflects the collective sentiment and expectations of market participants regarding potential future price movements.

Options prices are influenced by various factors, one of which is volatility. When traders anticipate higher price fluctuations, they are willing to pay more for options to hedge against potential risks. Consequently, an increase in implied volatility leads to higher option premiums, and vice versa. Implied volatility is a key component of option pricing models, such as the Black-Scholes model, where it helps determine the theoretical value of an option.

Traders and investors use implied volatility as a valuable tool for decision-making. A surge in implied volatility may signal uncertainty or upcoming events that could impact the underlying asset's price. Conversely, declining implied volatility might indicate a more stable market environment. Understanding implied volatility aids traders in assessing the risk and potential reward associated with specific options positions, helping them make informed choices in their investment strategies. Overall, implied volatility serves as a barometer of market sentiment and risk perception, playing a pivotal role in the dynamic landscape of financial markets.