Options Jive

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When to Use What IV

Options Jive

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

When traders are trying to set up expectations for future price movement of a stock or index, the implied volatility (IV) of options on that underlying product is essential. However, the question persists: which IV should we be using in order to calculate the expected price range that we are seeking?

Since we like to have as many tools at our disposal as possible, e.g. underlying IV, option chain IV, IV Rank, etc., choosing the correct number when seeking expected moves can be daunting. Thankfully, Tom takes some time during the segment to show how he would use the tastyworks platform to find the IV he would use for a few different scenarios. For example, expected moves can be seem out of line around earnings announcements and other binary events, making it very important to know which IV is being used to price what duration’s move. We default to the option chain IV when looking to price an expected move. This is because we like to look at the IV of the exact time frame that we are observing. Check out the segment above to catch a small tutorial on choosing the right IV!

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