Chartered Market Technician Practice Exam 2025 – Complete Prep Guide

When there is increased buying of options, implied volatility tends to increase. This is because the demand for options rises as more traders seek to hedge their positions or speculate on future price movements. This heightened demand signals to the market that participants expect future price fluctuations to be larger than previously anticipated.

Implied volatility reflects the market’s expectation of future volatility and is an integral part of option pricing models. As more traders buy options, market makers often respond by adjusting the prices of those options, leading to an increase in implied volatility.

Additionally, higher implied volatility can indicate greater uncertainty in the market about the underlying asset's future price, further driving up the cost and perceived risk of options. The relationship between option buying and implied volatility is key in understanding how market sentiment and behavior impact option pricing.