This is the market's picture of where TSLA could land by expiration. The scale never moves, so you can watch the shape. Grab the blue dot on the curve and drag it left or right: it sits at the plus one standard deviation price, so pulling it out widens and flattens the range and raises implied volatility. Lock a variable to hold it still and isolate one effect.
Where the stock could be at expiration
This IV (drag the dot) Calm baseline (20% IV) 68% of the time
Expected move by expiration (1 std dev)
±$0(±0%)
Around today's price of $420.
68% range
$0 to $0
Two out of three outcomes.
95% range
$0 to $0
The fat tails live out here.
An at-the-money option now costs about
$0per share (call or put)
Same stock, same strike. Only IV changed. The wider the range, the more that option is worth.
Plain English
Three things to know about implied volatility:
IV is about size, not direction. In practice it is the market's estimate of how big the swings will be, and it says nothing about which way the stock goes.
Higher IV means wider and pricier. The range of outcomes widens and flattens, the tails get fatter, and every option costs more.
Watch out for the crush. IV tends to fall once the news actually lands, so generally speaking, buying rich volatility right before an event is a good way to be right on direction and still lose.
Taxes are not shown here. Options and the underlying stock are taxed differently, and it depends on your holding period and account type. None of this is tax advice.