Understanding Implied Volatility (IV) and IV Rank (IVR)
If you’re new to options, Implied Volatility (IV) and IV Rank (IVR) are two of the most important concepts to understand when selling covered calls or premium in general.
What is Implied Volatility (IV)?
IV is the market’s current expectation of how much a stock or ETF is likely to move over the next year (annualized).
High IV = the market expects bigger price swings (more expensive options).
Low IV = the market expects calmer, smaller moves (cheaper options).
Think of IV as the “price tag” on fear and uncertainty. When investors are nervous, IV goes up, and option premiums become more expensive.
What is IV Rank (IVR)?
IVR tells you where the current IV stands compared to the past year for that specific stock or ETF.
IVR = 0% → Current IV is at its lowest point in the past year.
IVR = 100% → Current IV is at its highest point in the past year.
IVR 50% or higher = “relatively expensive” volatility (better for selling premium).
Tastytrade’s simple rule of thumb and what I teach:
We prefer to sell options (including covered calls) when IVR is above 50%, ideally 60%+. This is when you are selling “expensive” premium that has a higher probability of decaying in your favor.
Why Does This Matter for Covered Calls? When you sell a covered call, you are collecting premium upfront.
High IVR → You collect more premium for the same strike and expiration. Your income is higher and theta (time decay) works faster in your favor.
Low IVR → Premiums are smaller. You still keep the shares most of the time, but you make less income per trade.
Important reality check:
Many great long-term stocks and ETFs (like WMT) often trade with lower IVR. That is completely normal. You will collect less premium in these environments, but the probability of keeping your shares is usually even higher because the stock moves less.
The trade can still be very successful — it just takes more time and more shares/contracts to generate meaningful income.
What Happens If IVR Is Low and Then Spikes? If you sell a covered call when IVR is low and volatility suddenly increases (news, earnings, market scare, etc.):
The value of the call you sold will temporarily go up (even if the stock price hasn’t moved much).
Your position may show a paper loss for a period of time.
This is normal and temporary. Volatility tends to mean-revert. Once the fear subsides and IV drops back down, your short call loses value again, and you keep most (or all) of the original premium.
This is simply part of trading — not a failure of the strategy. Bottom Line – Our Philosophy: We do not chase only high-IVR stocks.
When IVR is elevated, we collect more income. When IVR is low, we collect less — but we are still getting paid to wait while owning the Stock or ETF.
Both scenarios can be profitable with the right mindset and position sizing.
In our coaching, you will learn how to quickly check IV and IVR on any stock, how to choose the best strikes and expirations, and how to manage trades calmly, whether volatility is high or low.