IV Percentile in options trading tells you how the current implied volatility (IV) compares to its range over a certain time, usually 1 year. It helps traders understand whether the IV is high, low, or average. High IV percentile means options are expensive, and low percentile means they’re cheap. This helps traders decide the best strategies for buying or selling options.

What is IV Percentile in Options Trading?

IV Percentile shows where the current implied volatility stands compared to the past. For example, if the IV percentile is 80%, it means the current IV is higher than 80% of the values seen over the past year. It helps traders judge if options are overpriced or underpriced based on volatility trends.

Why is IV Percentile Important for Option Traders?

IV Percentile is important because it tells whether options are relatively expensive or cheap. A high IV percentile means higher premium prices, which is good for option sellers. A low IV percentile means cheaper options, which is good for buyers. This helps traders decide when to buy or sell options for better profits.

How is IV Percentile Calculated?

IV Percentile is calculated by checking how many days in the past one year had a lower IV than the current value. For example, if current IV is higher than on 250 out of 300 days, then IV percentile is 83%. It gives a clear picture of how today's volatility compares to history.

What is the Difference Between IV Rank and IV Percentile?

IV Percentile tells you how often the IV was below the current level, while IV Rank shows where the current IV lies between its highest and lowest values in the past. Both help traders assess market volatility, but IV percentile is more accurate for knowing if current IV is really high or low based on history.

When to Sell or Buy Options Based on IV Percentile?

When IV Percentile is high (above 70%), it’s a good time to sell options because premiums are high. When IV Percentile is low (below 30%), it's better to buy options since premiums are cheaper. This strategy helps traders make better decisions and avoid overpaying or underselling options.

How Can IV Percentile Improve Your Trading Strategy?

By using IV Percentile, traders can avoid bad entries and pick the right options strategies. It helps in knowing the best time to use strategies like straddles, strangles, credit spreads, or debit spreads. It adds more confidence to your trades by giving you a clear idea of volatility conditions.