Implied volatility of an option contract is the estimated value of the market tendencies of a stock option. Implied volatility is an important tool which may help to determine the likelihood of a stock option reaching a certain price at a certain time.
The implied volatility does not necessarily correspond with the current or historical volatility. Rather, it is an indicator of the predicted volatility of the collective market during the timeframe of an option.
Implied volatility has been proven to be mean reverting in most stocks. Therefore, many traders deploy volatility strategies to profit from this effect.
Implied volatility can come in many different measures for different timeframes. For example, the Brutus Options Ranker has criteria such as:
30 Day Implied Volatility [underlying]
Implied Volatility [contract]
Both can be added to the user's strategy tree and used to evaluate implied volatility in their overall strategy rank.