Implied Volatility (IV)

Implied volatility is the market's expectation for how much a stock's price will move, expressed as an annualized percentage.

How it works

• IV is derived from option prices using pricing models (Black-Scholes)
• Higher IV → more expensive options (larger expected moves)
• Lower IV → cheaper options (smaller expected moves)

IV Rank and IV Percentile

• IV Rank: Where current IV falls within its 52-week range (0–100)
• IV Percentile: Percentage of days in the past year with lower IV
• Both help determine if IV is relatively high or low for that stock

Events that spike IV

• Earnings announcements
• FDA decisions (biotech)
• Mergers and acquisitions
• Economic data releases
• Geopolitical events

IV crush

After a known event passes, IV typically drops sharply. Option buyers can lose money even if the stock moves in their direction if the IV drop outweighs the directional gain.

Trading implication

• High IV: Favors selling options (collect expensive premiums)
• Low IV: Favors buying options (pay cheap premiums)