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What's the Deal with IV?

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

Implied volatility tends to be mean reverting, where stocks are not. This means that we have a better chance of being right on the direction of IV than the direction of the market.

If IV becomes inflated at a point, then it has a good chance of "reverting to its mean" and declining. By knowing this, we can take financial opportunities by selling options which profit from IV declines.

Since the chance of IV declining has a better than 50% chance when it is high to begin with, we as tastytraders, would rather take those odds rather than odds on being right on market direction, which is only 50%.

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