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IVR Adjustments

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.

As we discussed on Friday, large moves in Implied Volatility will skew IVR to underestimate the current level of IV inflation relative to historical averages.

Today we are going to cover this topic in more detail to determine how likely IV contraction is at some IVR, given whether there were IV outliers in the previous year.

We find that, although selling premium for IVR > 30 is a good rule of thumb on average, this threshold tends to vary in the context of outlier events.

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