Market volatility is around the lowest levels we’ve seen in the last six months. A lot of stock are showing a low implied volatility percentile.
Palantir (PLTR) for example, is showing implied volatility of 37% compared to a twelve-month low of 37% and a twelve-month high of 61%.
Implied volatility percentile is one of the most common metrics used when trading options.
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, Palantir’s IV percentile takes the current implied volatility and compares it to the past implied volatilities Palantir 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.
To get a true picture of stocks with a low implied volatility percentile, we can use the Stock Screener.
Using the Stock Screener to Find Low Volatility Stocks
Using the Stock Screener, we can set the following filters to find stocks with low implied volatility percentile.
- Total Options Volume greater than 2,000
- Market Cap greater than 40 billion
- IV Percentile less than 15%
This screener gives us the following stocks ranked from lowest IV Percentile to highest:
Conocophillips (COP)
Doordash (DASH)
Datadog (DDOG)
Palantir Technologies (PLTR)
Microsoft (MSFT)
Trade Desk (TTD)
Medtronic (MDT)
Airbnb (ABNB)
Disney (DIS)
Amazon (AMZN)
Here is the full list:
How To Use IV Percentile
As a general rule, when implied volatility percentile is low, it’s better to focus on long volatility trades such as debit spreads, long straddles and long strangles.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing low IV Percentile, then there might not be much of an edge in buying volatility on a specific stock. But, if general market implied volatility is high, that could be a good time to buy cheap volatility in some of the names above.
It’s also a good idea to keep an eye on the upcoming earnings dates as stocks can make big moves following earnings announcements.
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.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
