> For the complete documentation index, see [llms.txt](https://guide.laevitas.ch/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://guide.laevitas.ch/laevitas-metrics/implied-volatility-vs-realized-volatility.md).

# Implied Volatility vs Realized Volatility

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**This metric shows the difference between Implied Volatility and Realized Volatility. Typically Realized Volatility lags behind Implied Volatility especially during rigorous market conditions.**
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Volatility traders care not only about what is expected (Implied Volatility) but also what actually transpired (Realized Volatility). 

By knowing the difference between the two, a better view of the market (and option strategies) can be made.

 

![BTC Implied Volatility vs Realized Volatility](https://1780133611-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F5XlTHrw6jWA1Duk8yCcW%2Fuploads%2FY8p12gf1E6WdSgzLWcJJ%2Fimage.png?alt=media\&token=6e5e9853-4fd6-4f9f-93ae-bfb0095c168a)

### Mean Reversion of Volatility

From historical data, IV tends to overstate actual realized volatility(RV). The reason being that the fear of uncertainty is overblown, which leads to a positive outcome – option selling can be profitable for traders.

 

### Limitations

We could look at the current implied volatility (IV) and compare it to realized volatility (RV). This however can be quite misleading, because RV is by definition a lagging indicator since it looks into the past. Past price action is not a predictor of future price action.