7. Implied volatility
Implied volatility is a theoretical value, which is used to represent the volatility of a security price. It is calculated by substituting the actual option price, security price, option strike price, and the options expiration date into the Black-Scholes equation. Options with high volatility stocks cost more than those with low volatility. This is because the high volatility stock option has a greater chance to become in the money option before its expiration date. Most purchasers prefer high volatility stock options to low volatility stock options.