Unit 1 · Level 3 · The volatility surface
IV rank: expensive compared to what?
Is 30% IV cheap or expensive? Impossible to say. For a sleepy utility stock it would be screaming panic; for a crypto asset it would be a historic lull. Pros never judge IV in isolation: they compare it to the asset's OWN past year. IV rank asks one clean question: where does today sit inside this asset's own 52-week range?
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What you get asked
IV rank measures…
Rank 0 = at the year's low, rank 100 = at the year's high. Cheap or expensive RELATIVE TO ITSELF. That's the whole idea.
An index's IV is 30%. Its 52-week low is 20% and its high is 60%. IV rank = (current − low) ÷ (high − low) × 100. What is the IV rank?
(30 − 20) ÷ (60 − 20) = 10 ÷ 40 = 25%. Despite a '30% IV' headline, this asset's vol is in the cheap quarter of its own year.
Match the reading to what it tells a pro
Rank turns a raw IV number into a decision input: lean toward buying optionality when it's low, toward defined-risk selling when it's high.
A 60% IV sitting near its 52-week LOW is arguably ___: for that asset, movement is being priced modestly.
Context beats the raw number. A wild asset at the bottom of its own range is cheap by its standards, however big the headline IV looks.
IV rank is 90 on a stock. What does that actually tell you?
Rank compares an asset only to its own history. Not to its price, not to its peers, and never to a forecast. High rank means rich options, nothing more. 🐜
The rest of this unit
Skew, term structure and IV rank: the 3D map every options pro trades from.