BackQuant Glossary
Implied Volatility (IV)
The market’s forecast of future price volatility, baked into option prices. Calculated by inverting an option-pricing model from observed prices. IV is annualized; an IV of 60% implies a one-sigma annual move of 60%. Higher IV = more expensive options.
Related terms
Index Price
A composite reference price calculated from spot prices across multiple exchanges. Index prices are used for funding calculations, margin requirements, and option settlements. They smooth over single-venue manipulation or outliers.
Intrinsic Value
The amount an option would be worth if it expired right now. For a call, max(spot − strike, 0). For a put, max(strike − spot, 0). The remainder of an option price is time value, which decays toward zero by expiry.
ITM (In-the-Money)
An option with positive intrinsic value. A call is ITM when spot is above the strike. A put is ITM when spot is below the strike. Deep ITM options behave more like the underlying than like options.
IV Skew
The variation of implied volatility across strikes for the same expiry. Put skew (puts richer than calls) signals demand for downside protection. Call skew signals demand for upside exposure. The flip from one to the other is a meaningful sentiment shift.
IV Term Structure
The curve of implied volatility plotted across expiries at a fixed moneyness. Upward-sloping (contango) is the normal state. Downward-sloping (backwardation) signals an imminent event or active market stress. Term-structure shifts often front-run direction.
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