What Is IV Rank (IVR)? How to Measure Relative Volatility

Absolute vs. Relative Volatility

Knowing that the S&P 500 has an Implied Volatility (IV) of 15% tells you very little on its own. Is 15% high? Is it low?

To determine if options premiums are relatively expensive or cheap, traders use IV Rank (IVR) and IV Percentile (IVP).

How IV Rank is Calculated

IV Rank looks at the highest and lowest IV levels over the past 52 weeks.

• IV Rank 0: The current IV is the lowest it has been all year. Options are historically cheap.
• IV Rank 100: The current IV is the highest it has been all year. Options are historically expensive.
• IV Rank 50: The current IV is exactly in the middle of the yearly range.

IV Rank vs. IV Percentile

While IV Rank looks at the absolute high and low points, IV Percentile tells you the percentage of days in the past year that IV was lower than the current level. If IV Percentile is 80%, it means IV has only been higher than this level on 20% of trading days.

Applying IV Rank to 0DTE Options

For 0DTE traders, IV Rank helps dictate strategy:

• Low IV Rank: Premiums are cheap. Traders may prefer debit spreads or long directional options because the cost of entry is low, and volatility expansion could benefit the position.
• High IV Rank: Premiums are expensive. This usually happens before major macro events (like CPI or FOMC). Traders may prefer credit spreads or iron condors to capitalize on the inevitable IV crush once the event passes.