IV Rank is something that can help find big market moves. As a result, we have some custom indicators you can use in TOS to find big moves using IVR.
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How to Find the Markets Making Big Moves With IV Rank
Trying to look at the moves in the markets and see who is making big moves (relative to their size) can be difficult if we only look at their stock charts. Still, thankfully, we have volatility tools such as Implied Volatility (IV), Implied Volatility Rank (IVR), and Implied Volatility Percentile (IVP).
Implied Volatility (IV) is the market’s projected (or possible) yearly price movement.
IVR or Implied Volatility Rank is the one-year ranking of the current implied volatility between 0 and 100.
Implied Volatility Percentile (IVP) is similar to IV rank, except it then reports the percent of days (in the last year) where the volatility was lower than it is now.
If we want to know who is making big moves right now (relative to their size), we can look at their IVR and IVP.
A market with an IVP at 90% shows a higher volatility than 90% of all the volatility it has had over the past year. Only 10% of the time in the last year has it had a higher volatility than it does now. So, we could say that this market with a 90% IVP currently shows a lot of volatility.
Let’s Use Some Real Examples and Real Numbers
$SPY has an IV of 0.176%. It has an IV rank of 32% and an IVP of 37%. What does that mean? We were below the current IV 37% of the time, and a look at $SPY’s highest and lowest volatility over the past year, we are currently at about 22% (so in the lower 25% of the range). $SPY is not showing too much volatility now compared to some moves we saw in the last 12 months.
$AAPL has an IV of 0.258%. It has an IVR of 27% and an IVP of 34%. What does that mean? 34% of the time, we were below the current IV, and a look at $AAPL’s highest and lowest volatility over the past year, we are currently at about 27% (so just above the 25% range). $AAPL is not showing too much volatility now compared to some moves we saw in the past 12 months.
We can now compare volatility stats on at least two companies. AAPL is showing a slightly higher volatility than $SPY. What can we do with this information?
What Does the Iv Rank Suggest?
It suggests the options are likely a little cheaper than earlier in the year, and it implies that the day-to-day moves in these two stocks are not as big now as they have been over the past 12 months. We would want to look at the charts and see which way the volatility indicators are sloped (pointing higher, pointing lower, or flatlined) to get some idea of future market behavior (are things getting more or less violent).
In the options world – when volatility is low, we suggest it has nowhere to go except up, and when it is high, the volatility has nowhere to go but down; this is not exactly true, but it is how the markets see things. With that logic in mind, we can suggest avoiding options selling tactics in these two markets. We want to sell volatility when it’s higher and buy it back when it is low; if it is already low, we want to avoid selling it.
Selling volatility can be things like credit spreads and iron condors, while buying volatility can be debit spreads.
Here are a few custom indicators for the ThinkorSwim platform;
IV Rank vs IV Percentile
Share Link: https://tos.mx/YHBNjXH
IV Rank Label & Implied Volatility Label
http://tos.mx/aevu3Vz
Final Thoughts
The IV rank is something you can use to find big market moves. Make sure that you have a trading plan in place and follow it. That way, it keeps you from emotional trading. That’s where many losses occur.
