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Risk & Position Management
Implied Volatility
Definition
The market's forward-looking estimate of a stock's volatility, derived from option prices. Elevated IV signals expected price swings — useful for sizing short positions and timing squeeze setups.
Related Terms
Volatility
The degree of price variation over time, typically measured as the annualised standard deviation of returns. Higher volatility increases option premiums and short-selling risk.
Gamma Squeeze
A rapid stock-price spike driven by option market-makers hedging short-call exposure. As the share price rises, dealers must buy more underlying to remain delta-neutral, accelerating the squeeze. The 2021 US meme-stock rally was the textbook example.
See short selling in action
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