This can be used as a strategy but is generally just good information to combine with your specific trading strategy. What this study does is provide you with a quick and easy view of the stocks current IV Rank and IV Percentile. If you are familiar with TastyWorks and like their IV Rank portion of their platform, this study replicated that exact feature but on ThinkorSwim. This study also provides you with the IV Percentile and gives you an idea of what the current IV is compared to where its been throughout the past year. This is a great way to see if the Implied Volatility is higher or lower than what its been trending out throughout the past year. Let's check it out on a chart.
How It Works
So this study basically does the backend math to figure out the specific stocks IV Rank and IV Percentile. This can definitely help you decide what strategy you plan on using prior to entering a trade. You may be asking yourself what exactly is IV Percentile and how is it calculated.
Well here is the answer:
IV percentile is an indicator that compares current IV to the high-low IV range over a 52 week period. IV percentile denotes whether option prices are currently high/low relative to "normal" and therefore IV percentile can be used as a strategy selection tool. For example, select negative Vega strategies when IV percentile is high [green label], select positive Vega strategies when IV percentile is low [red label].
Let's check out what this looks like on a chart:
So as you can see this looks very clean and doesn't interrupt your charts at all yet it gives you a nice snapshot of the IV Rank and Percentile. Hopefully this will help you with your trading. If you have any questions or suggestions feel free to let me know in the comments!
IV Rank and IV Percentile Study