These Low IV Stocks May Be Setting Up for an Explosive…
Market volatility has dropped since the recent correction, but with plenty of items on the news front, we could see a volatility spike at any point.
That could mean it’s a good time to look for stock with a low implied volatility percentile.
A lot of stocks are showing a low implied volatility rank.
Tesla (TSLA) for example, is showing implied volatility of 40.25% compared to a twelve-month low of 39.13% and a twelve-month high of 76.78%.
Implied volatility rank is one of the most common metrics used when trading options.
IV Rank 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, Tesla’s IV rank takes the current implied volatility and compares it to the past implied volatilities Tesla 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 rank 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 rank, 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 5,000
- Market Cap greater than 50 billion
- IV Rank less than 30%
This screener gives us the following stocks ranked from lowest IV Percentile to highest:
Unitedhealth Group (UNH)
Tesla (TSLA)
Discovery Inc (WBD)
Electronic Arts (EA)
Petroleo Brasileiro S.A Petrobras (PBR)
Starbucks (SBUX)
Vale S.A. (VALE)
Netflix (NFLX)
Bank of America (BAC)
Here is the full list:
How To Use IV Rank
As a general rule, when implied volatility rank 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 Rank to the market in general. If all stocks are showing low IV Rank, 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.
