Illustrative article · Sample editorial content and publication date, prepared for this website. Not a disclosure of proprietary research.
Match the horizon
A 30-day implied volatility should be compared with the volatility realised over the following 30 days, not the preceding ones. Comparing against the past window mixes two different questions: whether options were expensive, and whether volatility has changed.
Estimation choices matter
Realised volatility can be measured from daily closes, from intraday data, or from high and low prices. Each has different noise and bias. Stating the method, and holding it fixed, is what makes a comparison across periods meaningful.
Read the spread, not the level
The level of implied volatility says how uncertain the market is. The spread between implied and subsequently realised volatility says how that uncertainty was priced. The two often move differently, especially around results, policy decisions and expiries.