The implied volatility tends to be the lowest when an option is at or near the money and increases when the option moves further out of the money or in the money. ... Implied volatility is a factor that drives option pricing. The higher the implied volatility, the higher the option price is.

What is at the money volatility?

A tool that measures the calculated or implied mid-rate volatility for an ATM option for a specific expiration date. In other words, at the money (ATM) volatility of an option is figured out by solving for the implied volatility of an ATM option.

Is implied volatility highest at the money?

The smile shows that the options that are furthest in the money (ITM) or out of the money (OTM) have the highest implied volatility. Options with the lowest implied volatility have strike prices at the money (ATM) or near the money.