What implied volatility is
Historical volatility measures how much the Nifty has moved. Implied volatility works backwards from an option's price: it's the volatility you'd have to put into an option pricing model, here Black–Scholes, to get the premium the market is paying. A higher IV means a more expensive option for the same strike and expiry, and a bigger move priced in.
IV is quoted as an annual percentage. To turn it into points, scale it to the days left:
Expected move ≈ Nifty price × IV × √(days to expiry ÷ 365)
Worked example (made-up premium)
| Example | |
|---|---|
| Option | 25,000 call, 6 days to expiry |
| Premium | ₹160.00 |
| Nifty price | 25,000 |
| Implied volatility | 11.53% |
| Expected move to expiry | 25,000 × 11.53% × √(6 ÷ 365) ≈ ±370 points |
| One-standard-deviation range | about 24,630 to 25,370 |
| Delta | 0.53 |
In theory the Nifty would finish inside the one-standard-deviation range about two times in three. Real markets have bigger jumps than the model assumes, so treat it as a rough guide, not a promise.
India VIX and IV
India VIX is NSE's volatility index. It's worked out from the bid and ask prices of out-of-the-money Nifty options in the near-month and next-month expiries, and expresses the volatility the market expects over the next 30 calendar days as an annual figure. A VIX of 15 means about 15% a year, or roughly ±4.3% over a month (15 ÷ √12, one standard deviation). The IV of a single option, which this calculator gives, can differ from the VIX, especially for strikes far from the price.
IV rank: is IV high or low?
IV rank = (IV now − lowest IV in the past year) ÷ (highest − lowest) × 100
With IV at 13.5% and a past-year range of 10.2% to 22.8%, the IV rank is 26.2%: in the lower part of the range. Many option sellers look for a high IV rank, because premiums are richer, and many option buyers look for a low one. Neither guarantees anything: IV can stay high or low for a long time. IV percentile is a related measure: the share of days in the past year when IV was lower than today.
Why IV matters for Nifty option strategies
- IV crush. IV often falls after a big event, such as a policy decision or a budget, and option prices fall with it unless the Nifty moves far enough to make up for it. The straddle guide covers this.
- Choosing strikes. The expected move gives a sense of how far away a strike is in terms of what's priced in, which helps when setting up a short strangle or an iron condor.
- Skew. Puts below the price usually trade at a higher IV than calls the same distance above it. Check the IV of the actual strikes you trade.
Put the strikes and premiums into the payoff calculator to see what a position pays at expiry. This page explains a calculation with invented numbers; it doesn't comment on any day's market or suggest a trade.