IV is also essential as it is mean-reverting - meaning that after a high value, you can expect a lower value and vise versa: after a low value, you can expect an increase in IV. This makes IV easier to predict compared to prices. You can see here an example for research we did: (Implied Volatility Rank in our blog)
In Samruai, we have several tools to help you find trades with favorable IV. Here is a short description of each of them:
- Research in the blog
- IV rank vs Future IV change backtest (Oct 2020) - Blog
- Data about the column in Knowledgebase: KB
IV - RV filters:
The data points in this category are:
- IV - RV: This is the absolute value. A positive value (>0) means that IV is higher than the RV (options are expensive compared to the past), and a negative value (<0) means that the RV is higher than the IV and options are cheaper when compared to the past volatility.
- IV - RV rank: A percentile that compares the IV-RV to itself over the last year. This is a value between 0-100, and it is mean-reverting. Meaning after a high value, you can expect a lower value and vise versa.
- RV Rank: A percentile of the RV itself over the past year. The RV is calculated as the real volatility over the past month. It is used to indicate if the recent historical volatility is high compared to the previous year. It is mean-reverting as well. Read the research on our blog: Predicting RV change.
IV - RV graph:
There are three elements you need to analyze when looking at this chart:
1. Where is the current IV/HV compared to the past year - is it high, is it low? This will help you get some idea about the percentile - research shows that if it is very high or low compared to the previous year, there is a higher probability of reverting to the mean.
2. What is the short-term trend - Are the HV&IV on an uptrend or downtrend (they will probably continue over the short term). If there is a spike, it increases the chance to revert. But if the change is gradual, it increases the opportunity to continue the trend.
3. Whether the IV is above or below the HV shows us the market expectation. If IV is above HV, the market expects an increase in volatility and vice versa. Compare the difference to the past to see if it's extreme (might mean revert) or reasonable.
Controlling the IV/HV chart
You can control the IV/HV parameters in the chart by clicking the gears icon.
Read more about the controls in our Details tab article.
Call IV + Put IV:
The skews measure this divergence between options on that 'smile' and can be used to see bullish or bearish tendencies in the options.
- Skew is calculated 25 deltas put minus 25 delta call, 30DTE.
- Call skew is calculated 50 delta call - 25 delta call, 30DTE.
- Put skew is calculated 25 delta put - 50 deltas put, 30DTE.
RV - Realized Volatility
The Realized Volatility (RV) - also sometimes referred to as Historical Volatility, is the past volatility of the Stock over the last 30 days. We allow you to scan according to RV and RV rank (percentile of the RV value over the previous year).
Please note that if you are interested in stock volatility, we also allow you to use: Beta, ATR, Bollinger bands, and standard deviations.
You can use these measures in our scanner, scenario for the entire market, analysis tab, and more to find the stocks according to your preference.