Implied and realized volatility are both important to option traders. But equally important is to understand how the two interact. This relationship is best studied by means of a volatility chart. Volatility charts are invaluable tools for volatility traders (and all option traders for that matter) in many ways.
First, volatility charts show where implied volatility (IV) is now compared with where it’s been in the past. This helps a trader gauge whether IV is relatively high or relatively low. Vol charts do the same for realized volatility. The realized volatility line on the chart answers three questions: