Implied Volatility Context: Why the Same Strike Can Be Cheap or Expensive
IV rank and IV percentile tell you whether current option premiums are high or low relative to history — critical context for 0DTE pricing.
A SPY 0DTE call might cost $1.50 on Monday and $3.00 on Tuesday at the same strike, same time of day, with SPY at the same price. The difference? Implied volatility.
What Implied Volatility Represents
Implied volatility (IV) is the market's expectation of how much the underlying will move. Higher IV means the market expects larger moves, so option premiums increase. Lower IV means smaller expected moves and cheaper premiums.
IV is not a prediction — it's a pricing input. But understanding whether IV is high or low relative to recent history gives you critical context.
IV Rank and IV Percentile
- IV Rank: Where current IV sits between its 52-week high and low. If IV ranged from 10 to 30 and is currently at 20, IV rank is 50%.
- IV Percentile: What percentage of days in the past year had IV lower than today. If 80% of days had lower IV, the IV percentile is 80.
Both metrics tell you the same thing in different ways: are option premiums currently inflated or deflated?
Why This Matters for 0DTE
Buying options when IV is elevated means you're paying a volatility premium. If the expected move doesn't materialize, the premium crushes faster than normal theta decay would suggest. This is "IV crush" — and it's a silent killer for 0DTE buyers.
Conversely, buying options when IV is suppressed means you're paying less for the same directional exposure. If volatility expands during the session (a surprise news event, a Fed comment), your position benefits from both direction and volatility expansion.
How We Score IV Context
Our scoring engine evaluates each contract's implied volatility relative to its recent context:
- Contracts with relatively depressed IV receive a scoring boost (cheaper premium for the same exposure)
- Contracts with inflated IV receive a penalty
This doesn't mean high-IV contracts never appear in rankings — sometimes the liquidity and directional setup outweigh the IV premium. But the scoring ensures you see the IV context before you make a decision.
Risk Disclosure: Implied volatility can change rapidly and without warning. IV metrics are backward-looking and do not predict future volatility. This is educational content.