IV Rank

IV Rank uses a simple formula:

IV Rank = (Current IV - 52-Week Low IV) / (52-Week High IV - 52-Week Low IV) x 100

Example: A stock's IV ranged from 20% to 60% over the past year. Current IV is 35%.

IV Rank = (35 - 20) / (60 - 20) x 100 = 37.5

This means current IV is at the 37.5th percentile of its annual range — options are moderately priced relative to this stock's history.

Another example: Same stock, current IV is 55%. IV Rank = (55 - 20) / (60 - 20) x 100 = 87.5. Options are very expensive relative to history — this is a premium-selling environment.

Important nuance: IV Rank is sensitive to outlier spikes. A single day with extremely high IV (like a flash crash or surprise earnings) can stretch the range and make all subsequent IV Rank readings appear low. This is why some traders prefer IV Percentile (which counts the percentage of days IV was lower) for a more robust measurement.

Both measure whether options are cheap or expensive, but they calculate it differently:

IV Rank: Based on the range (high minus low). A single extreme day can distort it.

IV Percentile: Based on the frequency. Counts what percentage of trading days over the past year had IV lower than today. If IV Percentile is 85, current IV is higher than 85% of all days in the past year.

When they diverge: IV Rank can be low even when IV is historically elevated if there was one extreme spike. For example, if IV spiked to 120% during a crash but normally trades 25-35%, current IV at 40% gives an IV Rank of only 16% despite being above the usual range. IV Percentile would correctly show this as elevated (perhaps 80+).

Best practice: Use both together. When both IV Rank and IV Percentile agree (both high or both low), the signal is stronger. When they diverge, investigate why — usually an outlier event distorted IV Rank.

Tradewink uses IV Rank as the primary filter because it responds faster to recent volatility changes, but the AI also checks IV Percentile as a confirmation signal.

IV Rank > 50 (elevated): Options are expensive. Favor premium-selling strategies: iron condors, credit spreads, short strangles, covered calls. You collect inflated premium, and if IV reverts to its mean, the options lose value in your favor.

IV Rank < 30 (depressed): Options are cheap. Favor premium-buying strategies: long calls, long puts, straddles, debit spreads. You pay a small premium that can expand significantly if a catalyst drives IV higher.

IV Rank 30-50 (neutral): No strong edge from IV alone. Focus on directional conviction and other factors.

Earnings context: IV Rank often spikes above 80 before earnings as options price in the binary event. After earnings, IV crushes — making pre-earnings iron condors or short strangles profitable if the stock stays within the expected move.

Sector-wide IV Rank: When an entire sector has elevated IV Rank (e.g., all semiconductor stocks above 70), it often signals a sector-level event or regime shift. Sector-wide IV selling can be more profitable than individual stock plays because diversification reduces the impact of any single stock's surprise move.

Comparing IV Rank across stocks: An IV Rank of 50 on TSLA and an IV Rank of 50 on KO mean different things in absolute terms. TSLA's IV might be 50% while KO's is 15%. IV Rank only tells you where a stock's IV is relative to its own history, not how volatile the stock is compared to others.

Ignoring the absolute IV level: A stock with IV Rank of 20 but absolute IV of 80% still has very expensive options in dollar terms. The IV Rank says options are cheap relative to this stock's own range, but 80% IV is objectively high. Consider both the rank and the absolute level.

Selling premium blindly on high IV Rank: High IV Rank means options are expensive, but they may be expensive for a reason — an upcoming catalyst, takeover rumor, or macro event. Always check why IV is elevated before selling premium. Selling options on a biotech stock with high IV Rank before an FDA decision is a common way to take catastrophic losses.

Using outdated IV Rank data: IV changes rapidly, especially during market stress. A stock's IV Rank from this morning may not reflect an afternoon news event. Use real-time IV data for trade decisions.