Reading low, medium, and high IV levels
| IV Level | What It Means | Options Are | Typical Scenario |
|---|---|---|---|
| Low (< 20%) | Market expects calm | Cheap | Steady blue chips, post-earnings lull |
| Medium (20–40%) | Normal uncertainty | Fairly priced | Most stocks, most of the time |
| High (40–80%+) | Market expects big moves | Expensive | Pre-earnings, biotech catalysts, market panics |
Why IV spikes and collapses around earnings
IV typically spikes before earnings announcements (uncertainty about results) and collapses afterward (the uncertainty is resolved). This ‘IV crush’ can destroy option value even if the stock moves in your direction.
IV Rank vs IV Percentile, step by step
IV Rank and IV Percentile tell you whether current IV is high or low relative to the stock’s own history. IV Rank = (Current IV − 52-week Low) / (52-week High − 52-week Low). Above 50% means IV is relatively high.
IV Rank = (Current IV − 52-wk Low IV) / (52-wk High IV − 52-wk Low IV)
Compare a stock's IV before and after earnings
Check a stock’s current implied volatility before and after an earnings announcement. Notice how IV collapses once the event passes — this is IV crush in action.
When a correct call still loses to IV crush
You buy a call before earnings with IV at 60%. Earnings are good and the stock rises 3%. But your option loses money. Why?
Buying versus selling based on IV
Reading an overnight IV spike
Implied volatility (IV) on SPY options jumps from 15% to 30% overnight. What are the LIKELY market conditions?
Check your understanding
Sit with the ideas.
You buy a call option the day before earnings. The stock barely moves after earnings. Even though you predicted the direction correctly, the option loses value. Why?
Why: