Options serve as market based predictors of future stock volatility and stock price outcomes. The level of the implied volatility of an option signals how traders are anticipating future stock movements. By comparing implied volatility to historical averages, investors can tell if markets are forecasting higher or lower future volatility.
Options that have an elevated implied volatility indicate investors are anticipating the underlying stock to experience higher than normal price swings relative to historical range for that stock. It is a sign that some event is happening or may about to happen and you will want to keep your eyes peeled.
Options with subdued implied volatility indicate that investors are anticipating the underlying stock to have smaller price fluctuation relative to historical averages. Since traders are pricing in lower future volatility, the option premiums will be lower and the cost to hedge risk comes down.
Report Date: 24-Feb-2017