Implied volatility (IV) is a metric used to forecast what the market thinks about the future price movements of an option's underlying stock. IV is useful because it offers traders a general range of prices that a security is anticipated to swing between and helps indicate good entry and exit points.

How important is implied volatility?

This is important because the rise and fall of implied volatility will determine how expensive or cheap time value is to the option, which can, in turn, affect the success of an options trade. For example, if you own options when implied volatility increases, the price of these options climbs higher.

What is a good implied volatility?

Around 20-30% IV is typically what you can expect from an ETF like SPY. While these numbers are on the lower end of possible implied volatility, there is still a 16% chance that the stock price moves further than the implied volatility range over the course of a year.