Here at tastytrade, we love trading in high implied volatility. Why? Tune in to hear Tom and Tony break down how High IV Rank helps when selling premium!
In times of high implied volatility, we see:
Wider Expected Move
Greater Likelihood Volatility is Overstated
When implied volatility is high, we see a widening of the expected move. In 2008, we saw larger expected moves than in 2017. This widening of the expected move allows us to be a further distance from ATM. Also, traders are compensated for stepping in during times of high implied volatility with richer premiums. In high IV Rank (IV Rank over 50) environments, credits in the SPY averaged $204 compared to $140 when IV Rank was below 50. Lastly, the expected move tends to be overstated more often when IV Rank is higher compared to when it is low.
Be sure to tune in and hear Tom and Tony break down why we love to trade in high IV Rank environments!
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