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Using IV rank to pick stocks to sell options on

IV rank puts today's implied volatility on a 0-to-100 scale against the past year. Sellers want it high enough that the premium is worth it, and not so high that the market is warning them. Here's how to read it.

Options guide · 8-minute read · Updated 2026-10-26

The short answer

IV rank tells you where a stock's Implied volatility sits today compared with its own past year: 0 means the lowest it's been, 100 the highest. Option premium rises and falls with IV, so IV rank tells you whether this stock's premium is fat or thin for this stock. That makes it a quick filter when you pick names for the wheel strategy.

Many sellers want a rank somewhere around 30 to 60: enough to pay for the risk, nothing alarming. Under about 20, the premium is usually too thin to bother. Over about 80, something is going on, and the fat premium is the market's price for it.

What implied volatility is, in one paragraph

Implied volatility is the market's guess at how much a stock will move, backed out of its option prices. High IV means options are expensive because traders expect big moves. Low IV means cheap options and a calm outlook. Our guide on implied volatility explained covers it fully.

The problem with raw IV is that 30% is high for a utility and low for a chip stock. IV rank fixes that by comparing a stock with itself.

The formula, in words then numbers

In words: take today's IV, subtract the lowest IV of the past year, and divide by the gap between the year's highest and lowest IV. Then multiply by 100.

With numbers, for a made-up stock XYZ: over the past year its IV ranged from a low of 20% to a high of 60%. Today it's 36%.

• Today minus the low: 36 − 20 = 16
• The year's range: 60 − 20 = 40
• 16 ÷ 40 × 100 = IV rank 40

So XYZ's options are priced in the lower-middle of their own yearly range. Most brokers and option tools show IV rank on the chain, so you rarely do this by hand.

The limit of the formula: it only knows the past year. If a stock had one wild week twelve months ago, the high is inflated and everything since looks "low." A sister measure, IV percentile, counts what share of days were below today's IV and is less thrown by one spike. Use both if your tool shows both.

Reading the number as a seller

High rank is not a bonus. It's a question: why does the market expect this stock to move more than at any point this year? Earnings, a lawsuit, a product failure, a sector scare. The premium is pricing that in. Our page on why high premium is a warning goes further.

How it fits the screen

IV rank is step three of screening stocks for the wheel: after price and liquidity, before quality and the earnings date. It decides whether a name is worth studying this month, not whether it's a good business.

A stock can pass IV rank and fail the quality check. A stock can fail IV rank this month and pass next month. The rank changes daily; the business doesn't.

A worked example (an illustration, not a trade idea)

Two made-up stocks, both at $50, both passing the price and liquidity checks.

Say you sold the XYZ put for the fat premium. You collect $210. Cash set aside: $4,600.

The trial fails. XYZ opens at $31.

The ABC put paid a quarter as much. It also didn't have a coin-flip built into it. If ABC had drifted to $44, you'd be assigned and down $200 minus $55: −$145, on a stock you screened as one you'd keep.

The lesson isn't "low rank good, high rank bad." It's that rank 91 was shouting. The screen's job is to make you hear it.

What to do next

1. Find the IV rank column on your broker's chain, or an option tool that shows it. If yours shows IV percentile instead, use that the same way.
2. Write today's rank beside every name on your watchlist.
3. For any name over 80, search the news. Write the reason down.
4. For any name under 20, note it and move on; check again next month.
5. Sell only in the middle, and only on names that also pass the quality checks.

Questions