Abstract Expected future volatility plays a central role in finance theory. Consequently, accurately estimating this parameter is crucial to meaningful financial decision making. Finance researchers generally rely on the past behavior of asset prices to develop expectations about volatility, documenting movements in volatility as they relate to prior volatility and/or variables in the investors’ information set. As useful as such investigations have been, they are by nature backward looking, using past behavior to project forward. An alternative approach, albeit less explored in the literature, is to use reported option prices to infer volatility expectations.1 Because option value depends critically on expected future volatility, the volatility expectation of market participants can be recovered by inverting the option valuation formula.