Editing Implied volatility (section)

==Implied volatility as measure of relative value==
As stated by Brian Byrne, the implied volatility of an option is a more useful measure of the option's relative value than its price. The reason is that the price of an option depends most directly on the price of its underlying asset. If an option is held as part of a [[delta neutral]] portfolio (that is, a portfolio that is hedged against small moves in the underlying's price), then the next most important factor in determining the value of the option will be its implied volatility.

Implied volatility is so important that options are often quoted in terms of volatility rather than price, particularly among professional traders.

===Example===
A call option is trading at $1.50 with the [[underlying]] trading at $42.05. The implied volatility of the option is determined to be 18.0%. A short time later, the option is trading at $2.10 with the underlying at $43.34, yielding an implied volatility of 17.2%. Even though the option's price is higher at the second measurement, it is still considered cheaper based on volatility. 
The reason is that the underlying needed to hedge the call option can be sold for a higher price.