Say what implied volatility is and how options traders use it

Implied volatility is the volatility that makes the option model reproduce the market price. It is found by iteration, and because value rises with volatility there is one answer. Traders quote and compare options in implied volatility terms, since it strips out differences in strike, price and maturity. If an option's implied volatility is above what a trader expects to be realised, the option looks rich, and the trader can sell it and delta hedge. Put–call parity implies a European call and put with the same strike and expiry should carry the same implied volatility. Across strikes and maturities, implied volatility forms a smile or surface. The trap is treating implied volatility as a model input instead of an output of market prices.