![]() ![]() ![]() ![]() Through the use of a measure called the implied volatility rank, you can determine whether the implied volatility is high or low relative to what it was in the past and even relative to other options. To determine this context we need to calculate the implied volatility rank, also known as IV rank. It is important to understand it within the context of the option’s history, as well as relative to other options, as this can yield important insights such as whether an option may be underpriced or overpriced. While knowing the implied volatility of an option is incredibly important on its own. Similarly, when demand and therefore option premiums drop, so does implied volatility. When there is rising demand, option premiums increase which in turn, increases implied volatility. It is derived from an option pricing model and is used to represent expectations of future price fluctuations. One of the most important data points for an options trader is the implied volatility measure. Don’t Get Trapped In Always Relying On Implied Volatility Rank.This gives us key insights into whether options are cheap or expensive on a relative basis. IV rank tells us how high implied volatility is in comparison to the last twelve months. ![]()
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