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One of the most common metrics used when trading options is the Implied Volatility Percentile.
IV Percentile is a measure of implied volatility where current implied volatility is compared to the range of implied volatilities in this past.
This comparison is made on the same stock.
For example, Apple’s IV percentile takes the current implied volatility and compares it to the past implied volatilities Apple has had.
This is then made into a percentage ranging from 0-100%.
A percentage of zero would depict a stock is currently at the lowest level of implied volatility it has been during the lookback period.
In contrast, an IV percentile of 100% illustrates that the stock is trading at its highest level of implied volatility.
As discussed previously, an upcoming earnings announcement can mean a stock has an elevated level of implied volatility. To get a true picture of stocks with a high implied volatility percentile, we can use the Stock Screener.
Using The Stock Screener To Find High Volatility Stocks
Using the Stock Screener, we can set the following filters to find stocks with a high implied volatility percentile.
- Total Options Volume greater than 20,000
- Market Cap greater than 40 billion
- IV Percentile greater than 70%
This screener gives us the following stocks ranked from highest IV Percentile to lowest:
Target (TGT)
Walt Disney Company (DIS)
Dominon Resources (D)
Palo Alto Networks (PANW)
Lowe’s Companies (LOW)
Snowflake (SNOW)
Activision Blizzard (ATVI)
Medtronic (MDT)
JD.com (JD)
Biogen Inc (BIIB)
Here is the full list of stock with high IV Percentile.
How To Use IV Percentile
As a general rule, when implied volatility percentile is high, it’s better to focus on short volatility trades such as iron condors, short straddles and strangles.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing high IV Percentile, then there might not be much of an edge in selling volatility on a specific stock. But, if general market IV percentile is low, that could be a good time to sell overpriced volatility in some of the names above.
It’s also a good idea to keep an eye on the upcoming earnings dates as stock can make big moves following earnings announcements.
Iron Condor Screener
Most of those names are due to report earnings soon, so let’s run an iron condor screener for Apple (AAPL) and analyze the results.
Let’s look at the fourth line item.
Using the December 16 expiry, the trade would involve selling the 130 put and buying the 110 put. Then on the calls, selling the 150 call and buying the 170 call.
The price for the condor is $4.66 which means the trader would receive $466 into their account. The maximum risk is $1,534 for a total profit potential of 37.18% with a probability of 61.9%.
The profit zone ranges between 125.34 and 154.66. This can be calculated by taking the short strikes and adding or subtracting the premium received.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
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