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What is the difference between implied and historical volatility?

Historical volatility is how volatile the stock has been 1: mathematically, the annualized standard deviation of its daily price changes 2. Implied volatility is an estimate of the stock's future volatility based on option prices 1, worked backwards from an option's price with a pricing model 3. One looks back at the stock; the other reads what its options are priced for now.

A $50 stock (made-up). Choose how big a typical week's move has been, and the implied volatility its 30-day $50 call trades at, and compare what the call is worth at each.

Source: the StrikePath engine, pricing with the Black–Scholes formula 4 at 4.3% interest a year; a simulated example, not market prices. For learning; not advice.

In numbers

Volatility is quoted as a yearly figure and scaled by the square root of time 5, so if the stock's weekly moves have a standard deviation of 2%, that is a historical volatility of about 2% × √52, or 14.4% a year. By the formula the 30-day $50 call is worth $0.91 at 14.4% and $1.80 at 30% 4: if its options trade at 30%, they are priced for bigger moves than those past weeks showed.

Why they differ

Implied volatility tends to rise before a company reports and fall after 6, when nothing about the past has changed. Fidelity suggests looking at a chart of an option's implied volatility against the stock's historical volatility 1; neither one is a forecast, and the past is no promise of the future.

What this shows, and what it doesn't

A rough historical volatility from one typical move, not the full calculation over many days 2, and one implied volatility for one option; real options on one stock trade at different implied volatilities across strikes 3.

Go further

What is implied volatility? →The forward-looking one, alone.What is IV crush? →When implied volatility falls.
Sources (6), checked 20 October 2026 and 28 October 2026
  1. Fidelity, “Implied volatility: what it is and why it matters” (Viewpoints, 12 June 2026). Read it (read 28 October 2026)
  2. The Options Industry Council, “Options Glossary”, entries under V. Read it (read 28 October 2026)
  3. CME Group, “Implied Volatility”. Read it (read 20 October 2026)
  4. Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)
  5. CME Group, “Understanding Options Volatility” (Introduction to Options course). Read it (read 20 October 2026)
  6. Andrew Dubinsky and Michael Johannes, “Earnings Announcements and Equity Options”, working paper, Columbia Business School, citing Patell and Wolfson (1979, 1981). Read it (read 20 October 2026)

Now try it on a scenario of your own

Pick where a simulated stock might be, and by when: drag one dot and see, side by side, what buying shares, one option, or a pair of options (a call or put spread) would each do. Free, no sign-up.

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