Implied volatility and IV rank: timing your premium selling

Implied volatility (IV) is the market's estimate of how much a stock might move in the future, baked into option prices. High IV means the market expects big moves; low IV means it expects calm.

IV is forward-looking and derived from prices, not history. It is the single biggest lever on how much premium an option carries beyond its intrinsic value.

When IV rises, options get more expensive across the board — the same strike and expiration pays a fatter premium. As a seller, you are effectively selling insurance, and IV is the price of that insurance.

That is why the same 0.30-delta put can pay wildly different premiums depending on the environment: it is not the strike that changed, it is how much fear is priced in.

A raw IV number is meaningless without context — 40% IV is high for one stock and low for another. IV rank puts current IV on a 0–100 scale relative to its own past year: IV rank of 80 means IV is near the top of its yearly range.

IV percentile is similar but measures the share of days over the past year that IV was lower than today. Both answer the same practical question: is option premium expensive or cheap for this stock right now?

Because IV tends to revert toward its average, selling options when IV is high means you collect rich premium and often benefit as IV falls back — a tailwind on top of time decay.

Selling when IV is very low does the opposite: you collect thin premium and risk IV expanding against you, inflating the value of the option you are short.

IV usually ramps up into earnings and other known events, then collapses immediately after — a move called 'IV crush.' Premium sold before earnings can lose value quickly once the uncertainty resolves.

That cuts both ways: the elevated premium is tempting, but the stock can also gap far through your strike on the news. Many wheel sellers avoid holding short options through earnings unless they truly want the shares at that strike.

IV does not replace your other rules — you still only sell puts on stocks you want to own, at strikes and sizes you can handle. IV just tells you when the market is paying you well to do so.

A practical habit: favor selling cash-secured puts when IV rank is moderate-to-high, and be patient when it is low. Getting paid more for the same risk is one of the simplest edges available to a seller.