IV Rank and Implied Volatility: What Option

Implied volatility

• Implied volatility reflects the volatility embedded in option prices, not a guaranteed forecast of future realized volatility.
• Higher implied volatility generally increases option premiums, all else equal.

IV Rank

• IV Rank typically asks where current implied volatility sits relative to its high and low over a lookback period.
• A high reading means current IV is closer to the top of that historical range.

IV Percentile

• IV Percentile typically measures how often implied volatility was below the current level during a lookback period.
• It answers a different question from IV Rank, so the two can diverge.

For premium sellers

• Higher IV can improve premium received but usually exists because the market is pricing more uncertainty.
• Volatility can continue rising after entry.
• Earnings, macro events and crisis conditions can make 'high IV' rational rather than cheap.

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