what is atm iv
ATM IV stands for "At-The-Money Implied Volatility." It is a concept used in options trading to describe the implied volatility of an option whose strike price is closest to the current price of the underlying asset. Implied volatility (IV) is a measure of the market's expectation of the future volatility of the underlying asset's price.
Here's a bit more detail:
At-The-Money (ATM): An option is considered at-the-money when the strike price of the option is very close to the current price of the underlying asset. For example, if a stock is trading at $100, then the $100 strike option would be considered at-the-money.
Implied Volatility (IV): This is the market's forecast of the likely movement (volatility) of the underlying asset's price. It is derived from the market price of the option using an options pricing model like the Black-Scholes model. Unlike historical volatility, which measures past price movements, implied volatility is forward-looking and reflects the market's view of the likelihood of changes in the underlying asset's price.
ATM IV is a critical input for traders and investors because it can provide insights into market sentiment and potential price movements. Higher implied volatility generally indicates greater expected fluctuations in the asset price and, consequently, higher option premiums.
In practice, traders often look at the ATM IV as a benchmark for the overall level of volatility in the market or for a specific asset. It can also be used to compare the relative expensiveness or cheapness of options across different strike prices and maturities.