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 past implied volatility range.
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 zero percentage would depict a stock currently at the lowest level of implied volatility 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 an accurate picture of stocks with a high implied volatility percentile, we can use the Stock Screener.
Using The Stock Screener To Find High Volatility Stocks
Despite the VIX index hovering around its lowest level in 6 months, some stocks still show high implied volatility.
We can set the following filters using the Stock Screener to find stocks with a high implied volatility percentile.
- Total Call Volume 5,000
- Market Cap greater than 40 billion
- IV Percentile greater than 50%
This screener gives us the following stocks ranked from highest IV Percentile to lowest:
Arm Holdings (ARM)
Bristol-Myers Squibb (BMY)
Eli Lilly (LLY)
Boeing (BA)
Pfizer (PFE)
Amgen (AMGN)
Fortinet (FTNT)
Nextera Energy (NEE)
RTX Corp (RTX)
Paypal Holdings (PYPL)
Here is the full list of stocks showing IV Percentile and earnings dates.
How To Use IV Percentile
Generally, when implied volatility percentile is high, focusing on short volatility trades such as iron condors, short straddles, and strangles is better.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing a high IV Percentile, then there might not be much of an edge in selling volatility on a specific stock. But, if the 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 watch the upcoming earnings dates as stock can make big moves following earnings announcements.
Iron Condor Screener
Let’s run an iron condor screener for the above stocks and analyze the results.
Let’s look at the first line item on Boeing.
Using the February 16 expiry, the trade would involve selling the $215 put and buying the $180 put. Then on the calls, selling the $250 call and buying the $285 call.
The price for the condor is $6.77 which means the trader would receive $677 into their account. The maximum risk is $2,823 for a total profit potential of 23.98% with a probability of 64.3%.
The profit zone ranges between $208.23 and $256.77. 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.
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.
