An option’s implied volatility (IV) at 95% means that the market expects the underlying asset’s price to fluctuate with an annualized standard deviation of 95%. In simpler terms, it suggests a 68% probability (one standard deviation) that the asset’s price will move up or down by 95% over the next year, assuming a normal distribution of returns.
For example, if a stock is priced at $100, an IV of 95% implies the market expects the stock price to be between $5 and $195 ($100 ± 95%) within one year, with 68% confidence. High IV, like 95%, indicates significant expected price swings, often due to uncertainty, upcoming events (e.g., earnings), or market turbulence. It also makes options more expensive, as volatility increases option premiums.
