How Options Are Quoted in Volatility

Options quoted in volatility are negotiated on the input to the pricing model rather than on the dollar premium that comes out of it. A desk asks for size in one specific contract at a volatility level, both sides agree on a model and on a reference price for the underlying, and the cash premium falls out of that arithmetic at the moment the trade is struck. The premium is the output. The vol level is the thing the two sides were actually arguing about.

What it means when options are quoted in volatility

Here is a made-up ticket, with round numbers picked for teaching rather than pulled from any live market: buy 500 December 100 calls at 22.5 vol, 45 delta, stock reference 99.80.

Nothing in that line is a price in dollars. It names the contract (December expiry, 100 strike, calls), the size (500), the volatility level being paid (22.5), the hedge ratio (45 delta) and the underlying price both sides will feed into the model (99.80). Only once those five things are agreed does a premium exist.

The delta carries a second instruction. One US equity option contract covers 100 shares, so a 45 delta on 500 contracts travels with 22,500 shares of stock moving the other way. The buyer of the calls sells the stock; the seller of the calls buys it. Both sides finish holding a position in volatility with the price direction taken out. That stock leg is the delta exchange, and it belongs to the same ticket rather than to a separate trade done later.

If the word volatility is doing unfamiliar work here, our guide to implied volatility defines the quantity, and how implied volatility is calculated walks through the model that turns a vol level into a price.

Why a dollar price goes stale and a vol level does not

A premium quote is true for one instant at one underlying price. The underlying does not sit still for the length of a phone call. The panel below measures every one-minute bar in AAPL across a pinned six-week window and reports the typical move inside a single minute, grouped by the clock in New York.

SELECT
    et_hour,
    round(quantileDeterministic(0.5)(move_bps, obs_id), 1) AS median_move_bps,
    round(quantileDeterministic(0.9)(move_bps, obs_id), 1) AS p90_move_bps,
    count()                                                AS minute_bars
FROM
(
    SELECT
        formatDateTime(toTimeZone(window_start, 'America/New_York'), '%H:00') AS et_hour,
        cityHash64(ticker, window_start)                                      AS obs_id,
        10000 * abs(toFloat64(close) / toFloat64(open) - 1)                   AS move_bps
    FROM global_markets.delayed_stocks_minute_aggs
    WHERE ticker = 'AAPL'
      AND window_start >= '2026-04-06 04:00:00'
      AND window_start <  '2026-05-16 04:00:00'
      AND open > 0
      AND volume > 0
)
GROUP BY et_hour
HAVING count() >= 1200
ORDER BY et_hour ASC

One basis point is one hundredth of one percent. In the 07:00 hour the middle minute moved 1.7 bps, with one minute in ten at 6.4 bps or wider. By the 19:00 hour the middle minute measured 0.3 bps. Hours outside the regular session hold far fewer bars, which the count column makes visible.

An option premium tracks that drift through delta, its sensitivity to a one dollar move in the stock. A volatility level holds no stock price inside it, so 22.5 still means 22.5 three minutes into a conversation once the reference price is restated. The next panel follows one AAPL call through the same window. The contract is chosen in SQL rather than by hand: the most heavily traded near-the-money call, identified by the positive delta that only calls carry, with an expiry beyond the window. Each line is measured from that contract's own first session.

WITH
(
    SELECT ticker
    FROM global_markets.options_greeks
    WHERE underlying_symbol = 'AAPL'
      AND toFloat64(delta) > 0
      AND date BETWEEN '2026-04-06' AND '2026-05-15'
      AND expiration_date BETWEEN '2026-06-15' AND '2026-09-30'
      AND iv_converged = 1
      AND volume > 0
      AND abs(toFloat64(strike_price) / toFloat64(underlying_close) - 1) < 0.03
    GROUP BY ticker
    ORDER BY sum(volume) DESC
    LIMIT 1
) AS traced_call
SELECT
    toString(date)                     AS session_date,
    formatDateTime(date, '%b %e')      AS session_label,
    round(100 * (toFloat64(underlying_close)
        / first_value(toFloat64(underlying_close)) OVER (ORDER BY date ASC) - 1), 2)   AS stock_change_pct,
    round(100 * (toFloat64(option_close)
        / first_value(toFloat64(option_close)) OVER (ORDER BY date ASC) - 1), 2)       AS call_premium_change_pct,
    round(100 * (toFloat64(implied_volatility)
        / first_value(toFloat64(implied_volatility)) OVER (ORDER BY date ASC) - 1), 2) AS quoted_vol_change_pct
FROM global_markets.options_greeks
WHERE ticker = traced_call
  AND date BETWEEN '2026-04-06' AND '2026-05-15'
  AND iv_converged = 1
  AND option_close > 0
  AND implied_volatility > 0
ORDER BY session_date ASC

Between Apr 6 and May 15 the stock finished 16.26% from where the window started, the call's closing premium 374.77%, and the volatility quoted on that same contract -1.54%. Three lines, one contract, the same sessions.

How a vol quote becomes a cash price

Two agreements turn a volatility into money: a pricing model and a reference price for the underlying. Exchanges that support volatility quoting put both in the rulebook. CME runs volatility quote trading on its Globex platform under Rule 584, adopted in a filing to the Commodity Futures Trading Commission dated February 8, 2008.

The options volatility quoting convention allows for bids and offers in terms of annualized implied volatility (e.g., 12.450% bid at 12.550% offer).

The same rule sets out what happens at the instant two vol quotes meet:

At the time of an options volatility match, CME Globex will utilize standard options pricing models to convert the options volatility trade into a premium quoted option for clearing, and where applicable, create accompanying risk reducing futures contracts as a delta-neutral hedge for the matched position.

Source: CME Rule 584, CME Globex Options Volatility Quote Trading, Appendix 2 to CME Submission 08-28, filed February 8, 2008.

The interpretation attached to that rule lists what the exchange feeds the model: the matched implied volatility, the underlying futures price from Globex, time to expiration in years, the strike price, the current interest rate, whether the contract is a put or a call, and the option style. The reference price is pinned by the rule as well, taking the midpoint of the front month bid and ask on Globex, with the previous settlement price as the fallback when no midpoint is available.

The hedge is arithmetic rather than negotiation. The number of futures allocated equals the net delta from the pricing model multiplied by the quantity of options traded, rounded to the nearest whole contract. The filing's own worked example matches a 100 lot at a computed net delta of 0.51 and hands each side 51 futures. Rule 584 governs options on futures, and CME's first volatility-quoted listings were FX options. The convention is older than the rule and reaches well beyond one venue: in equity options the same package appears as an options order coupled with the quantity of stock needed to leave the pair delta neutral.

A vol quote means nothing without the contract attached

A volatility level is not a property of a company. It belongs to one strike and one expiry, and it shifts as either one changes. The panel below sorts AAPL calls with 20 to 45 days left by how far the strike sits from the stock, then reports the median volatility and the median delta in each bucket over the same six weeks.

SELECT
    strike_vs_spot,
    round(100 * quantileDeterministic(0.5)(iv, obs_id), 2)       AS quoted_vol_pct,
    round(quantileDeterministic(0.5)(contract_delta, obs_id), 2) AS typical_delta
FROM
(
    SELECT
        cityHash64(ticker, date)      AS obs_id,
        toFloat64(implied_volatility) AS iv,
        toFloat64(delta)              AS contract_delta,
        toInt32(round(100 * (toFloat64(strike_price) / toFloat64(underlying_close) - 1) / 2) * 2) AS moneyness_step,
        concat(if(moneyness_step > 0, '+', ''), toString(moneyness_step), '%')                    AS strike_vs_spot
    FROM global_markets.options_greeks
    WHERE underlying_symbol = 'AAPL'
      AND toFloat64(delta) > 0
      AND date BETWEEN '2026-04-06' AND '2026-05-15'
      AND iv_converged = 1
      AND volume > 0
      AND days_to_expiry BETWEEN 20 AND 45
      AND implied_volatility > 0
      AND abs(toFloat64(strike_price) / toFloat64(underlying_close) - 1) <= 0.10
)
GROUP BY strike_vs_spot, moneyness_step
HAVING count() >= 20
ORDER BY moneyness_step ASC

At the -10% bucket the median contract carried 29.85% volatility at a 0.87 delta. At the +10% bucket, same underlying and same weeks, the median sat at 24.62% volatility with a 0.12 delta. The tilt across strikes is the skew, and it is why a vol quote always names its contract: the level and the hedge ratio both change with the strike. Reading those two columns on a live chain is covered in how to read an option chain.

What this changes on a retail option chain

Retail order tickets are entered in dollars. The quotes filling those tickets are built in volatility. The panel below takes near-the-money contracts with 20 to 45 days left in six widely traded names, measures every day-over-day change in the closing premium and in the volatility of the same contract, then reports the typical size of each.

SELECT
    underlying_symbol                                              AS symbol,
    round(quantileDeterministic(0.5)(premium_move_pct, obs_id), 2) AS median_premium_move_pct,
    round(quantileDeterministic(0.5)(vol_move_pct, obs_id), 2)     AS median_vol_move_pct,
    round(quantileDeterministic(0.5)(premium_move_pct, obs_id)
        / quantileDeterministic(0.5)(vol_move_pct, obs_id), 1)     AS premium_move_ratio
FROM
(
    SELECT
        underlying_symbol,
        cityHash64(ticker, date)                                AS obs_id,
        100 * abs(toFloat64(option_close) / prev_premium - 1)   AS premium_move_pct,
        100 * abs(toFloat64(implied_volatility) / prev_vol - 1) AS vol_move_pct
    FROM
    (
        SELECT
            underlying_symbol,
            ticker,
            date,
            option_close,
            implied_volatility,
            lagInFrame(toFloat64(option_close))       OVER (PARTITION BY ticker ORDER BY date ASC) AS prev_premium,
            lagInFrame(toFloat64(implied_volatility)) OVER (PARTITION BY ticker ORDER BY date ASC) AS prev_vol,
            lagInFrame(date)                          OVER (PARTITION BY ticker ORDER BY date ASC) AS prev_date
        FROM global_markets.options_greeks
        WHERE underlying_symbol IN ('AAPL', 'MSFT', 'NVDA', 'SPY', 'KO', 'JNJ')
          AND date BETWEEN '2026-04-06' AND '2026-05-15'
          AND iv_converged = 1
          AND volume > 0
          AND days_to_expiry BETWEEN 20 AND 45
          AND option_close > 0
          AND implied_volatility > 0
          AND abs(toFloat64(strike_price) / toFloat64(underlying_close) - 1) < 0.05
    )
    WHERE prev_premium > 0
      AND prev_vol > 0
      AND dateDiff('day', prev_date, date) <= 4
)
GROUP BY underlying_symbol
HAVING count() >= 200
ORDER BY premium_move_ratio ASC

Even the steadiest pairing in the set moved its premium about 2.1 times as much as its volatility on a typical day: 15.84% against 7.48%. A market maker re-quoting an option through the session is mostly recomputing the same premium against a new stock price. The number being revised by judgement is the volatility. When a quote shifts with the stock sitting still, that input moved. How market makers make money and what a bid ask spread is cover the rest of that machinery.

FAQ

Can a retail trader buy options in volatility terms?

Not on a standard brokerage ticket. Retail order entry takes a limit price in dollars of premium. Volatility quoting lives in negotiated institutional trades and on exchange platforms that support it, such as CME Globex under Rule 584.

What does 45 delta mean in a volatility quote?

Delta measures the option's sensitivity to a one dollar move in the underlying. Inside a vol quote it doubles as the hedge instruction: at 45 delta, each contract covering 100 shares travels with about 45 shares of stock going the other way.

Why do institutions quote options in volatility instead of price?

A dollar premium is valid at one underlying price, and the underlying moves every few seconds. A volatility level stays meaningful for the length of a negotiation, with the cash figure computed at the end from an agreed model and an agreed reference price.

Is the volatility in a vol quote the same number as the IV on my option chain?

Yes, it is the same quantity: annualized implied volatility for that contract. A chain shows it after the fact, backed out of a traded premium, while a vol quote states it up front and derives the premium from it.

Who delivers the stock in a delta exchange?

The two counterparties, under the same agreement. The side left long delta through the options sells the hedging shares, and the other side buys them, in the size the agreed delta calls for.

Every panel here carries the SQL that produced it. Change the ticker or the window and ask the same question on the Strasmore terminal.