Podcast Episode Details

What Is Implied Volatility Rank (IVR) and How Does It Fit with Technical Setups?

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Episode 121

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What is implied volatility rank (IVR) and how does it fit with technical setups?

In this episode, we tackle the critical half of options trading that goes beyond just predicting direction: volatility. The ticket cost of an option—implied volatility—is crucial, but a raw number is useless without context. We break down Implied Volatility Rank (IVR), a powerful metric that gives you that context by comparing a stock's current IV to its historical range.

Learn the simple concept behind IVR and, more importantly, how to use it as a strategic filter. Discover the core principle of volatility mean reversion and how a high IVR (70-100) typically favors option selling strategies (credit spreads, iron condors), while a low IVR (0-30) is the sweet spot for option buyers (long calls/puts, debit spreads). We then connect this filter to common technical setups—breakouts, trend continuations, reversals, and range-bound markets—and even combine it with tools like Bollinger Bands to select the optimal options strategy systematically.

What is one technical setup you think is perfectly suited for an IVR filter? Join the conversation and subscribe for more guidance on conservative options trading!

Key Takeaways

1. IVR Context: Implied Volatility Rank (IVR) is a percentile rank that compares a stock's current Implied Volatility (IV) to its own historical range (typically the last 52 weeks). It instantly tells you if options are historically cheap or expensive for that specific asset.
2. Mean Reversion Strategy: Volatility tends to be mean reverting. A High IVR (e.g., 70-100) suggests volatility is more likely to fall, favoring option selling strategies (e.g., credit spreads). A Low IVR (e.g., 0-30) suggests volatility is more likely to expand, favoring option buying strategies (e.g., long calls/puts).
3. IVR is a Strategic Filter: IVR guides the 'how' (buy premium vs. sell premium), not the 'if' or 'where' of the price move. It must always be confirmed by your technical analysis for direction.
4. Breakouts and Low IVR: The "sweet spot" for an option buyer is often a strong technical breakout confirmed when the IVR is low beforehand, allowing the trade to benefit from both the price move (Delta) and the likely expansion in volatility (Vega).

"IVR helps answer that one fundamental question before every single options trade: are these options cheap or expensive right now compared to how they've been priced historically?"

Timestamped Summary

• 0:39 What Implied Volatility Rank (IVR) is and why it's crucial for picking options strategies.
• 1:27 Defining Implied Volatility (IV) versus Historical Volatility (HV) as expectation vs. what happened.
• 2:33 How IVR works: comparing current IV to its 52-week range and the 75% example.
• 5:14 The IVR Rule of Thumb: High IVR favors selling, Low IVR favors buying, based on mean reversion.
• 6:47 Applying IVR to technical setups: Breakouts, Trend Continuation, and Reversals.

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Published on 2 hours ago