IV Rank

IV Rank Options Strategy

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. This is a very helpful indicator to use when choosing an options strategy. Options contracts rely heavily on IV rank and percentile.

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.

Real Life 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 shows 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 shows we are currently at about 27% (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? 

IV Rank Example

IV Rank Example

This is an example of the IV Rank and percentile indicator in the ThinkorSwim platform. This chart shows the implied volatility indicator along with RSI. There are also options charts available for traders to look at. The IV indicators on this chart are customizable and can also be removed. It’s important not to rely on indicators too much when trading options. They are meant to be a helpful guide.

This example is a chart of $META. You’ll see that the price was trading in a large uptrend. The chart above shows a large overall rising wedge, with falling wedges in between. The current price shows the price going to the bearish side at the moving average lines.

What Does 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. 

Frequently Asked Questions

IV Percentile calculates the percentage of days within the past 52 weeks when implied volatility was lower than the current value. For example, if the IV percentile was 75%, it means that 75% of the past 52 weeks had lower levels of implied volatility.

IV Rank and Percentile help investors determine whether a securities option prices (IV) are higher or lower than normal. It can help them choose the proper options strategyl

Current (IV) implied volatility indicates how much a security might move. IV constantly changes due to the options prices changing.

High IV is bad for options buyers because they have to pay more for the options contract. It can be profitable if the expected move is larger than expected.

Buying options strategies are generally better when the IV levels are low. These strategies can include buying calls and puts and debit spreads. High IV is good for options sellers.

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