Conventional options trading knowledge would lead one to believe that IV Rank (IVR) cannot be higher than 100 or less than 0. Yes, for the most part, that is true. However, what happens when the IV for a stock or ETF breaches the prior high or prior low? Well, that's a case when IVR can stride outside the range of 0 to 100.
Remember, IV Rank tells us whether implied volatility (IV) is high or low in a specific underlying based on the past year of IV data. For example, if XYZ has had an IV between 30 and 60 over the past year and IV is currently at 45, XYZ would have an IV rank of 50%. To learn more about IV Rank, please visit our friends at tastytrade by clicking here.
- How can IV Rank be lower than 0?
- How can IV Rank be higher than 100?
- When will IV Rank return to 0 and 100?
How can IV Rank be lower than 0?
Let's borrow the example above. Let's say that IV dropped to 20 from 30 intraday. As a result, IVR would display a negative number since the prior low for IV was breached. When you see a negative IVR during a trading session, then that indicates the bar has been lowered in terms of how low IV has gotten. Displaying a negative number is a lot more useful when determining a new low for IV rather than keeping IVR stuck at 0. Below is a real-life example of an underlying with a negative IVR.
How can IV Rank be higher than 100?
Still borrowing the example above, let's say the IV for XYZ spiked to 80 from 60 intraday. As a result, IVR would display a number higher than 100 since IV has touched a new high. When you see a 100+ IVR during a trading session, then that indicates the bar has been raised in terms of how high IV has gotten. Displaying a 100+ IVR is a lot more useful when determining when a new high for IV is reached rather than keeping IVR stuck at 100. Below is a real-life example of an underlying with a 100+ IVR.
When will IV Rank return to 0 and 100?
There comes a time when IVR has to come back to earth and into return back to the 0 to 100 range. IVR will return to the 0 to 100 range the next trading day, as long as a new high or low for implied volatility is not breached. Still using our XYZ example, as long as IV stays above its new low of 20 and below its new high of 80 then IVR will display a number between 0 and 100.