Market Measures

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Analyzing Outlier Rank

Market Measures

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

IVR does not take into account how much exposure there is to outlier risk at a given IV level, so last week we introduced a concept called OR (Outlier Rank).

Outlier Rank is a way to estimate how often IV has understated an asset's returns in the past month relative to its long term average.

Last week, we found that trading in high IVR/low OR environments may give strangle traders a profit edge.

Today we investigate if trading in high IVR/high OR environments (assuming “returns volatility reversion") is also more profitable than conventional trading strategies.

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