Volatility, in general, is a measure of risk for investments. Specifically, it looks at the movement of prices over a period of time. Options contracts are dependent on volatility for their very value as the volatility of a security's price gives investors reason to speculate about the future direction of the stock. Implied volatility is the "estimated" volatility of a stock price. The most common formula for calculating implied volatility (the value of an option) is called the Black-Scholes Option Pricing Model. It is a very complicated model, but you can use one of the many other calculators found on the Internet to help.
Gather information on the option you wish to find the implied volatility for. Let's use GE for this example. You will need the current price of the underlying asset (GE's stock price), the date the option expires on, the option's current price, the current risk-free rate and the dividend yield.
Go to Yahoo! Finance. Yahoo! Finance is the most popular investment research site on the Internet as rated by Alexa.com. Input the ticker symbol for the stock--GE for General Electric. Click "Get Quotes."
Note the current stock price. Click on "Key Statistics" and scroll to the bottom for dividend yield.
Click on "Options" for the current option price and note the date the option expires. Those options expiring in the current month will be listed first. Click on the month of expiration at the top of the chart for future months.
Look up the risk-free rate. The risk-free rate is the current rate of U.S. Treasury bills. See Resources for the most recent rate. Use the rate that matches the duration of your option. That is, use the three-month Treasury rate for an option which expires in three months, the six-month Treasury rate for an option expiring in six months, and so on.
Input this information into the options calculator provided in Resources. The formula is the same, so you can use most any options calculator as long as it's based on the Black-Scholes Option Pricing Model. Click "Calculate" for an answer.
Use 1 for "Market Price."