Implied volatility (IV) explained: IV Rank, IV Percentile, skew and India VIX

The one input to an option's price that nobody can look up. What IV measures, how to turn it into an expected move, and why it differs from strike to strike.

By the EzyOptions Team · Updated 2026-10-12

What is implied volatility?

An option's premium depends on the underlying's price, the strike, the time to expiry, interest rates and how much the underlying is expected to move. The first four are known. The last one is not, so it is worked backwards from the premium the market is actually paying: that number is the implied volatility (IV). It is quoted as an annualised percentage, so an IV of 13 on NIFTY says the market is pricing moves consistent with about 13 percent a year.

IV is not a forecast anyone made. It is the price of uncertainty, read off premiums. When traders pay more for options, IV rises, even if the index has not moved; when they pay less, it falls. That is why the same strike can cost more on a quiet morning before an event than on a busy afternoon after it.

Implied volatility versus historical volatility

Historical volatility measures how much the underlying actually moved over a past window, from its closing prices. Implied volatility is what option prices say about the moves ahead. The gap between the two is information: IV well above recent historical volatility means options are expensive relative to how the index has been behaving, and the reverse means they are cheap. Neither says which way the index goes next.

How to turn IV into an expected move

Because IV is annualised, scale it to the horizon you care about with the square root of time: expected move = spot × IV × √(days ÷ 365). This is the move the market is pricing as one standard deviation, the size of move it treats as roughly a two-in-three chance of not being exceeded.

Worked example NIFTY at 24,000 with IV of 13 percent. Over 30 days: 24,000 × 0.13 × √(30 ÷ 365) ≈ 894 points. Over a 7-day weekly expiry: about 432 points.

Read it as a scale, not a promise. Markets move more than one standard deviation often enough that a position sized as if they cannot is the classic way to lose a month in a day.

What is India VIX?

India VIX is NSE's volatility index. It is computed from the best bid and ask quotes of near-month and next-month NIFTY options, mainly out-of-the-money ones, and expresses the volatility the market expects over the next 30 calendar days as an annualised percentage. It is IV for the whole index rather than for one strike. A VIX of 12 means the market is pricing NIFTY to move about 12 percent a year, or a little under 3.5 percent over the coming month. Like any IV, it rises with fear and uncertainty and falls as they pass.

IV Rank and IV Percentile: is today's IV high or low?

A raw IV number means little on its own: 15 is high for NIFTY and low for a volatile stock. Two measures put today's IV in the context of its own past year.

• IV Rank = (today's IV − the year's lowest IV) ÷ (the year's highest IV − the year's lowest IV) × 100. It says where today sits in the year's range.
• IV Percentile = the share of the year's trading days on which IV was lower than today. It says how often IV has been below this level.

Worked example Over the past year IV ranged from 10 to 22, and it is 13 today. IV Rank = (13 − 10) ÷ (22 − 10) × 100 = 25. If IV was below 13 on 80 of 250 trading days, the IV Percentile is 32.

The two disagree when the year held one spike: a single panic day sets a high ceiling, so IV Rank reads low for months afterwards while IV Percentile still reflects the typical day. Both need a full year of recorded IV to mean anything. Where EzyOptions does not yet hold that history, it shows these figures as estimates and labels them EST.

What is volatility skew?

IV is not the same at every strike. Plotted across one expiry, IV per strike usually forms a slope or a curve, called the volatility skew, or the smile when both ends turn up. On index options the common shape is a skew: out-of-the-money puts carry higher IV than calls the same distance away, because demand for downside protection is persistent and markets tend to fall faster than they rise. Comparing a strike's IV with its neighbours shows what the market is paying up for, and a skew that steepens says protection is being bought.

IV also differs across expiries, which is the term structure. Near-dated options often carry higher IV than later ones in the run-up to a scheduled event, such as the Union Budget or an RBI policy announcement, because the event falls inside their life.

The IV crush

When the event is over, the uncertainty it carried leaves the price at once. IV falls, every premium deflates, and a bought option can lose money on a day the index moved the right way. That fall is the IV crush, and its size per option is what Vega measures.

Worked example A NIFTY call at ₹180 with a Vega of 14. If IV falls 4 points after the event, the premium loses about 14 × 4 = ₹56 per unit with everything else unchanged: ₹3,640 on one lot of 65.

Reading IV next to a position

Buyers of options are long Vega: rising IV helps them and falling IV hurts them. Sellers are the opposite. So the same view on direction can be expressed through a position that wants IV to rise or one that wants it to fall, and knowing which one you hold is part of knowing what you hold. The option chain shows IV per strike and the skew across the expiry, and the strategy builder lets you shift IV and watch a payoff change before any money is involved.

Implied volatility: common questions

Educational content only: not investment advice. You are responsible for your own trading decisions.