Lesson Overview

IV vs. IV Percentile

Understanding (and mastering) the difference between a stock's actual implied volatility and that IV's percentile or rank going back historically is one of the biggest keys to your success.

This is because our whole concept of trading options and selecting strategies hinges on this concept of volatility and pricing. Are options relatively expensive or relatively cheap? How do we know? How can we truly compare between different stocks?

In this in-depth tutorial lesson I'll go into great detail to make sure you know exactly why simply looking at a stock's IV is not enough. And how you can figure out how cheap/expensive a stocks options are relative to the past. Buckle up because this one is intense.

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  • Shiva

    Kirk,
    Is there any guide that tells us for how much IV Percentile range and what probable startegies can be used…
    Example: IV Percentile 0-25 – Calls/puts, calendars, debit spreads
    IV Percentile 25 -50 – Some starategy ?
    IV Percentile 50 -100 – Some strategy ?

    • Yep there is in the checklists and guides section from the dashboard :)

  • Shiva

    Thanks Kirk. Now i understand how IV Percentile works vs Implied Volatility. But i still want to ask this question: Suppose if we see IV Percentile is 70 + ..so if we wanna sell options does it have to be only in FRONT MONTH ? Does IV % apply only for front month options or does not matter which month we choose in future ?

    • High IV will have a great impact on front month options but depending on the strategy you’ll want to either come in closer or move out further to trade. Check out our Ultimate Strategy Guide on this because we detail the best timeframe for each trade there.

  • It should show up automatically as an option to add once you add the custom code for the charts.

  • Marcus Hong Chiu

    I added the IV Rank code into the chart in TOS and it works perfectly, do you also have the code for IV percentile ?

  • IV percentile is a much more complicated calculation and the variance between it and IV rank is not that significant. IV rank does the trick.

    • Ooi Chin Eng

      Hi Kirk,

      What is the IV Rank code? I looked at the IV Rank in Watch List, it’s not the same as IV percentile in TOS. I’ve been using TOS mobile platform for option trade. Is the IV percentile showed in mobile platform the same as IV rank?

      • Our calculation is a little different than TOS but generally they follow the same path with slight differences.

      • Ooi Chin Eng

        oh, how could i add the rank code in TOS?

      • It’s a custom code we wrote – but now we include it as part of our watch list.

  • Yep it could throw it off and we try to go in every couple weeks and check for those spikes and remove them from our rank calculation to help minimize the impact.

  • What are you looking for? A description of it? Where to find it in the broker platform?

    • Jeff Smock

      yes on tos at the bottom of the options chain…I understand iv and iv percentile(avg) and iv rank(mean)…just can’t fine a description of “current hv percentile”.

      • Yeah I’m not sure how they calculate that but I would ask TOS. I tried to search their site for you but didn’t find anything.

  • kevin

    hi im new to trading. looking for some suggestions on comparing iv percentile vs hv percentile

  • Yep and that’s why we clean our data to remove any random highs or lows each month so it fits easier like a percentile.

  • Either one works – it’s all relatively the same and we clean our ranking data to prevent high or low IV spikes from skewing everything.

  • andrew aspden

    If IV is high but IV Rank is low, is it still a good time to buy?

  • Overall IV is more important. Best strategies for beginners are credit spreads and iron condors.

  • Marc W.

    Hi Kirk, thanks for this great video. couple questions:
    1. Could we still Sell Option (like selling a Put Credit Spread) when IV is relatively low (say, 9% IV Rank)?
    2. If IV Rank is high, say 68% IV Rank, dose that mean it’s highly possible the stock price could go higher quickly?
    3. In the opposite, if IV Rank is low, like 9%, does that mean stock price could go down slowly?

  • More like when IV is low keep positions around 1-2% and when IV is high scale up to at most 5%.

    • Marc W.

      Thank you, Kirk!

  • Drew

    Hey Kirk,

    I’ve recently switched over to tastytrade software from thinkorswim. Can you point me to that video where you show how to load the IV Rank code into TOS? I’d like to do the same thing with the TT software…

  • sandeep reddy

    IV percentile says whether IV was lower or higher historically…

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