Volatility is often called the fear gauge of the options market. When fear rises, volatility spikes — option premiums get expensive, risks increase, and opportunities can shift in an instant. When markets calm, volatility falls — premiums decline, and risks ease.
As Rick Orford explained in his latest video, understanding volatility is essential to avoid overpaying for options and timing trades with higher probability.
Key Volatility Metrics Every Trader Should Know
Aside from historical volatility (HV) and implied volatility (IV), traders should master three additional metrics:
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IV Rank → Shows where today’s IV sits relative to the past year.
- High IV Rank = premiums are more expensive than usual.
- Low IV Rank = premiums are less expensive than usual.
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IV Percentile → Shows how often IV has been lower than it is today.
- High IV Percentile = current IV is elevated compared to most of the year.
- Low IV Percentile = current IV is depressed compared to most of the year.
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IV vs HV Ratio → Compares implied volatility to realized volatility.
- High ratio = options may be overpriced (better for sellers).
- Low ratio = options may be underpriced (better for buyers).
Why It Matters
Even a perfect trade setup can turn into a “volatility trap.”
- Enter a long options trade when IV is already high → you risk overpaying for inflated premiums.
- Sell options when IV is low → you might not collect enough premium to make the risk worthwhile.
By combining IV Rank, Percentile, and IV/HV ratios, traders can better judge whether conditions favor buying or selling options.
How to Put This Into Action
- Check IV Rank and Percentile in Barchart’s PnL Charts.
- Use the Options Screener to filter for trades with favorable volatility setups.
- Pair with Options Flow to see how institutions are positioning around volatility.
Bottom Line
Volatility is always changing — and without the right tools, it can work against you. By using IV Rank, IV Percentile, and IV/HV ratios, you can avoid common mistakes and tilt trades in your favor.
Watch the clip where Rick Orford explains how to use these metrics:
- Watch Rick’s full video: Options Volatility Secrets: IV Rank & Percentile Explained for a step-by-step volatility strategy guide.
- Learn more about Barchart’s PnL Charts to analyze volatility before your next trade.
