The Skinny On Options Data Science

IV Rank and IV Percentile (w/ thinkscript)

| Nov 12, 2015
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    The Skinny On Options Data Science

    IV Rank and IV Percentile (w/ thinkscript)

    Nov 12, 2015

    Click here for a link to the thinkscript

    To install the thinkscript on your thinkorswim platform, please follow the steps below:

    1) Go to 'Charts' tab
    2) Click on the "Studies" tab…same line where you type in the ticker same symbol, on the right hand side)
    3) Click on "Edit Studies" and then "New"… Lower left hand corner
    4) Delete everything in the box. (plot Data = close;)
    5) Paste the entire code listed below
    6) Name the study 'tastyliveivrivp'
    7) Click "OK"
    8) Click "Apply"
    9) Click "Ok"

    Many traders are confused about exactly what the difference is between Implied Volatility Rank (IVR) and Implied Volatility Percentile (IV%) and this segment clears things up. Dr. Data (Michael Rechenthin, Ph.D.) is back to help you sort through the numbers.

    The tastylive philosophy tells us to be premium sellers. We emphasize selling high Implied Volatility (IV) and often stress the importance of a high IV Rank (IVR). The default on the thinkorswim platform even displays IVR on the trade page. The Dough platform enables us to see the IV percentile (IV%). Many traders do not understand the difference between the two, but each can give us a very different picture of the volatility environment.

    Dr. Data first shows us how to calculate each and explains what they mean. He makes the formulas understandable even for those of us who are math challenged. He then explains why at times IVR can be misleading and can keep us from selling premium because we think IV is low. Dr. Data uses an example to show that sometimes IVR looks low but IV% tells us there is something to sell as most of the time IV is lower than where it currently is (in this example). The graphs he displays, especially the ones of the distribution of IV, make things clearer. He does a great job of explaining it all.

    The amount of premium received and return on capital are key measures on which to focus when choosing which measure to use and whether to trade or not. The importance of consistency is stressed. Dr. Data along with Tom and Tony emphasize that picking and choosing when to use IVR and when to use IV% is not smart. What is smart is to know about the different tools available and after watching this segment you will understand IVR better, IV% better, the difference between the two and you will have another from which to choose.

    Watch this segment of The Skinny on Options Data Science with Tom Sosnoff, Tony Battista and Dr. Data to learn the difference between IV percentile and IV Rank and what each can tell you.

    This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.

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