
Posted in
Technical Analysis
By: Tom Gentile
on March 25th, 2022
Implied Volatility
Part of what makes up the premium of an option is what’s called Implied Volatility.
The definition of Implied Volatility (IV) from Investopedia.com is implied volatility is a metric that captures the market’s view of the likelihood of changes in a given security’s price.
What we see is as is a means to tell if an options price is expensive or inexpensive.
An options IV can be charted and my software www.tomsoptiontools.com does that.
Low or High IV: a Visual
Low 7-30 ATM IV (At the Money IV over a 7–30-day period) on the Invesco QQQ Trust (QQQ):

The upper legend in the above image is the different range of days IV and the percentage (0-100%) it is currently in.
The options are deemed cheap if it is in the lower part of its range and it is deemed expensive if it is in the upper part of its range.
We typically trade options on a 20–30-day time expectancy and often use the 7-30-day IV view.
Some of my options strategies are for a longer time frame expectancy and we can evaluate IV for longer-term time frames as needed.
Strategies to Consider Based on IV
Regardless of what the major indices show for the IV on them as an optionable security, I would advocate for one to evaluate the IV for each security they are considering trading options on.
If IV is low consider Buying Strategies like Long Calls, Call Debit Spread.
If IV is high consider Selling Strategies like Call or Put Credit Spreads
Then when you go to the Morning Report Lists and see Highest Option Volume on Calls or Puts you can check the IV for a security or more on those lists to decide how you wish to trade it, option strategy-wise.
It doesn’t matter if you are trading any strategy with calls or puts the same analysis on IV should be done.

App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Disclaimers
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.