Implied Volatility

woodsfog_cmp_rndWhy implied volatility matters

As an option seller I look for stocks with high volatility since more extrinsic value is included in the price. Additionally, I establish intelligent diversification of my portfolio through uncorrelated underlying.

With thousands of different stocks from which to choose, how do I use these metrics to identify and differentiate trades? Let’s look at the numbers.

Higher volatility increases the breakevens:

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Higher volatility, for the same strikes, can also increase our credits received:

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How does IVR differ from IV?

Implied volatility rank (IVR) is a metric derived from IV and gives a sense of where, in the past year’s range, current IV is trading. For example, the S&P 500:

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