TLDR: Realized volatility is how much price actually moved in the past; implied volatility is how much the options market expects it to move in the future. Realized looks backward and is measured from price history; implied looks forward and is backed out of option prices. The gap between them — implied minus realized — is the volatility risk premium, and it tells you whether options are pricing in more movement than the market has been delivering. This is education only, not a buy or sell call.
Volatility is the single most important input in an option's price, and crypto traders throw the word around as if it meant one thing. It means two. Realized volatility and implied volatility are different measurements pointing in opposite directions in time, and confusing them is how traders end up surprised when an option loses value even though they "got the direction right." Here is the distinction, why the gap between the two matters, and how to read it without overreaching.
What is realized volatility?
Realized volatility — also called historical volatility — measures how much an asset's price *actually* moved over a past window. It is computed from the price series itself, typically as the annualized standard deviation of returns over, say, the last 7 or 30 days. Nothing about it is an opinion or a forecast; it is a description of what already happened.
If Bitcoin chopped in a tight range for a month, its realized volatility is low. If it whipsawed 8% a day, realized volatility is high. It is the volatility you can verify after the fact by looking at the chart.
What is implied volatility?
Implied volatility is the market's *expectation* of future volatility, extracted from the prices traders are paying for options right now. You cannot observe it directly. You take an option's market price, an option-pricing model, and solve backward for the volatility figure that makes the model output match that price. That number is the implied volatility.
Because it comes from live option prices, implied volatility is forward-looking and reacts instantly to fear, demand for protection, and upcoming events. The crypto market even has a standard benchmark for it: Deribit's DVOL index measures the 30-day forward-looking implied volatility for Bitcoin, the options-market equivalent of the equity world's VIX.