This episode of Option Jive looks at the differences between single underlying implied volatility (IV), implied volatility rank, and option chain implied volatility.
When trading, IV rank is the most frequently used measure opposed to the other forms of IV. IV rank takes into account the underlying’s low IV point and high IV point for a given time period and ranks the underlyings current IV on a scale of 0 - 100. An IV rank above 50% means the option is more expensive and closer to the year’s high, while an IV rank below 50% means the option is less expensive historically. A higher IV rank has shown to have higher average profit, and higher IV ranks means traders can widen their strikes.
However, IV rank doesn’t tell us everything about the trade. A stock can have a high IV rank but low premium. Therefore, a single underlying IV can tell us information about the credit received for the trade.
Tune in as Tom and Tony examine these metrics further.