What Is Implied Volatility (IV), Rank (IVR) and Percentile (IV%)? (US options and futures)

Volatility metrics play a vital role in many traders' day-to-day operations. Below, you can find information on all of our available volatility metrics, as well as information how you can implement these values into your trading.

Implied Volatility (IV)

Implied volatility is the projected annual price movement of an underlying stock, presented on a one standard deviation (SD) basis. This figure is derived from the options prices - in other words, we use the Black-Scholes model’s inputs to solve for IV, not the other way around.

If XYZ stock is trading at $100 per share and has an implied volatility of 20%, that means the projected price movement for the stock is between $80-120 over the course of the year. Remember, this is presented on a one standard deviation basis, which accounts for 68.2% of occurrences.

IV is not perfect for that reason, but it does allow us to use options prices to determine how much future stock price volatility we may expect. The higher the IV number, the more projected movement we should expect as options prices are more expensive than a low IV environment.

IV Rank (IVR)

IV rank gauges the current level of IV relative to the range of IVs over the past 52-weeks. For example, if XYZ has had an IV between 30 and 60 over the past year and IV is currently at 45, XYZ would have an IV rank of 50% (IV Rank = (45-30) / (60-30)= 50%). You can find IV Rank on the top header of the desktop platform, or you can add it as a positions/watchlist tab column.

IV Rank = (current IV - 52 week IV low) / (52 week IV high - 52 week IV low)

IV Percentile (IV%)

IV percentile calculates the percentage of days in the past 52-weeks in which IV was lower than the current value. For example, an IV percentile of 80% means that 80% of the days in the past 52-weeks have had lower levels of IV (IV%= (202 / 252) = 80%).

IV Percentile = (# days when IV was lower than current IV) / 252

Implied Volatility per Expiration (IVX)

The implied volatility per expiration (IVx) metric displayed in the option chain is calculated using a VIX-style calculation. The Cboe calculates the VIX Index using standard SPX options and weekly SPX options. These options are weighted to yield a measure of the expected volatility of the S&P 500 Index.

A similar procedure applies to the calculation of IVx for each expiration cycle in the options chain. IVx per expiration can be found on the right side of the options chain for each expiration in the desktop platform. IVx on the positions/watchlist tab will default to a 30 days timeframe.

30-DAY Implied Volatility

30-Day Implied volatility (IV) refers to the forecasted magnitude, or one standard deviation (SD) range, of potential movement away from the underlying price in a 30-day period. IV is not a guaranteed metric, but it’s helpful in traders understanding ranges from a statistical perspective to help with risk management, buying power fluctuations, etc.

A low implied volatility environment tells us that the market isn’t expecting the stock price to move much from the current price over the next 30 days. Inversely, a high implied volatility environment tells us that the market is expecting large movements from the current stock price over the course of the next 30 days.

30-Day Historical Volatility

Historical volatility is a backward-looking metric that measures how far the underlying has deviated from its mean price. Historical volatility is calculated by taking a rolling standard deviation of daily returns. This provides insight into the volatility that an underlying has seen in the past 30 days but is no indication of what level of volatility the underlying is expected to have in the future.

30-Day IV-HV Difference

Implied volatility is a forward-looking metric, whereas historical volatility is a backward-looking metric. Historical volatility can serve as a fixed point of reference, while fluctuations in implied volatility reflect the relative value of an option's premium. For example, when HV and IV closely match, options premiums are generally considered fairly valued based on historical norms. The higher the IV-HV 30-day difference, the larger the deviation in expected volatility vs. past levels of volatility. Traders can use these deviations to take advantage of overvalued or undervalued options premiums.

HV IV 30 Day Difference = IV - HV