Truth or Skepticism Podcast

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Key Concepts

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

High IV, Low IV

Implied Volatility refers to a one standard deviation move a stock may have within a year. If a stock is $100 with an IV of 50%, we can expect to see the stock price move between $50-150. The lower the IV is, the less we can expect to see the stock price fluctuate, and vice versa. These environments tend to be extremes, so we are very mindful of them and act fast when they arise.

At tastytrade, we pay more attention to IV rank than pure IV as it provides more context. Different strategies present themselves in low IV and high IV environments. We prefer to sell premium in high IV environments, and we may buy debit and calendar spreads in low IV environments. Since IV is the most mean reverting function in finance, deploying these strategies at extremes allows us to add another dimension to our profitability. Instead of price direction or duration, we can now profit from an expansion or contraction in IV.

High IV, Low IV Videos