In the options world, there are two types of volatility: historical and implied. Historical volatility refers to how much the stock price fluctuated (high price to low price each day) over a one-year period. Since it's historical, this figure refers to past price data. If the number of data points is not stated (for example, 30-day), then it's assumed that historical volatility is an annualized number.
Implied volatility (IV) refers to a stock's anticipated volatility of the stock in the future, without regard for direction. Like historical volatility, this is an annualized number. However, IV is determined using an options pricing model. Although the marketplace may use implied volatility to anticipate how volatile a stock may be in the future, there is no guarantee the forecast will be correct.
If there's an earnings announcement or a court decision coming up, traders will alter trading patterns on some options. As a result, the price of the options shifts up or down, independent of the stock price movement. The implied volatility is derived from the cost of those options. Think of it this way: if there were no options traded on the stock, there would be no way to calculate the implied volatility.
Implied volatility can help you gauge how much the marketplace thinks the stock price might swing in the future. It is a significant element in option pricing. The higher the implied volatility, the higher the option price. Higher IV indicates the likelihood of a larger price swing.