Understanding Implied Volatility

In the context of options trading, implied volatility is a crucial measure that reflects the market's expectations of future volatility in the underlying asset's price. When options are priced, traders often look at implied volatility to ascertain whether an option is overvalued or undervalued compared to historical data. Understanding how implied volatility can fluctuate based on various market conditions is essential for making informed trading decisions.

If an analyst states that the implied volatility of a call option on Stock A has increased significantly, this typically suggests that: