Lesson 5: Implied Volatility: the Market's Expected Range

Lesson 5 of 10 · about 8 minutes · course overview

Options prices contain the market's estimate of how much gold will move. Desks read that implied volatility to size positions and set expectations, long before price itself moves.

From an index to a daily range

The CBOE Gold ETF Volatility Index (GVZ) expresses expected 30-day volatility as an annual percentage. Divide by √252 (about 15.87) for a one-standard-deviation daily move, by √52 for a week. In theory about two days in three stay inside one standard deviation.

Implied vs realised

Compare implied volatility with what gold actually did over the last 20 days. When implied is well above realised, options are pricing in an event (a Fed meeting, CPI, geopolitics); when it is below, options are cheap relative to recent movement and a volatility shock is not priced.

How pros use it

• Sizing: keep the dollar risk constant; when expected moves double, halve the size.
• Stops and targets: a stop well inside the expected daily move is mostly noise; a one-day target several times the expected move needs an unusual day.
• Regimes: high-volatility regimes produce bigger and more frequent 2% days; our page shows the record by GVZ quartile.

Implied volatility tells you about size, never direction. Pair it with the ATR stop-loss calculator for realised ranges.