To rank volatility effectively, traders often use Implied Volatility (IV) Percentile and Historical Volatility (HV) Percentile. IV and HV are essential metrics that provide insights into price movements.
What is IV?
IV is a forward-looking measure that reflects the market's expectation of future price fluctuations. It is derived from current options prices and changes as the market anticipates future moves. For example, IV typically rises before anticipated price moves and decreases after events like earnings announcements.
What is HV?
HV is a backward-looking measure that quantifies past price fluctuations over a specific period. It tells how volatile a stock has been historically. For instance, a stock with an HV of 10 has been less volatile than one with an HV of 35. HV varies over time, reflecting different levels of past volatility.