 Hey everyone, welcome to another video lesson from navigationtrading.com. In this video, I wanna talk to you about the difference between implied volatility rank and implied volatility percentile. Now there are a lot of indicators out there, almost all of which are lagging indicators, meaning they're showing you what has already happened in the past. Implied volatility is the only indication we have of a projection of a forward-thinking projection. Now as you can see, we've created an indicator for implied volatility called the navigation trading IV indicator and it's plotted here on our charts. And so what you'll see, and it actually gives a description of what each one is right here on the indicator on the chart. So we've got IV rank is the green line and as it says here, what that means is that's the implied volatility of the specific symbol that we're looking at, in this case, SPY. It's the implied volatility in comparison to its yearly high and low. So we like to look at implied volatility on an annual basis. So if I pull up just a one-year chart, then what you're gonna see is you'll get a full indication of where implied volatility has been over the course of a full year. So you can see it's had a low of right down here, kinda near zero and it just ranges from zero to 100. And obviously at the time this recording implied volatility is very high, so it's gone all the way up to 100. And so what that tells you is right now the implied volatility rank is at 64, right? That's where the green line is currently plotted on today's date. And that's just where implied volatility is for these SPY options in comparison to its high for the year and its low for the year. So it's above 50 and we like to be net sellers of options especially when implied volatility is high. So when implied volatility rank is over 50. Now, there are some shortfalls with IV rank, it's not perfect. And so one of the reasons that we also plot IV percentile is because it can take out some of the moves and changes in implied volatility and give us, it's just a different calculation of the implied volatility reading. We also look at IV percentile over an annual period, in this case 252 trading days, which is about a year. And so what you're gonna see here is that IV percentile plots the percentage of days, in this case 240 days out of 252 trading days that were below the current IV. So in this case it's at 95. So 95% of the days over the last year had a lower implied volatility. The options were cheaper than they are today. So that gives us a very high reading. Now, as you can see, the IV percentile has a higher plot than the IV rank. And that tends to be the case. You'll have some situations where IV rank is higher than IV percentile, but the majority of the time you're gonna see the IV percentile number higher than the IV rank. And so the way that we like to use this indicator is if either the IV rank or the IV percentile are above 50, we consider that higher implied volatility. And that basically just means that the options are more expensive than they've been over the past year. And so when implied volatility is high, we wanna be net sellers of options, meaning sell strangle, sell iron condors, iron ducks, butterflies, iron butterflies, anything where you're selling premium and you're benefiting from a contraction in implied volatility. Because one thing we know is that over 85% of the time, implied volatility is overstated, meaning the uncertainty, the fear in the marketplace is overstated. So if we can sell options when they're expensive, when implied volatility is high, we are going to benefit when implied volatility contracts. Now if we go over to the option chain on a symbol, sticking with SPY in this case, and we go to the option chain, the other way that you can look at this is from a perspective, if you go to a specific expiration cycle, so a lot of times we like to enter trades between 30 and 60 days. So in this case, let's just look at the 44 day options and open up that, that's the May cycle in this case. What you'll see is that the implied volatility, so the monthly implied volatility is at about 55. So if we just look at that monthly implied volatility, if you don't trade a specific symbol that often, you may not understand if that means the implied volatility is high, or is it low, or what is that in comparison to? So that's SPY at 55 if we pull up a stock like Netflix and look at the same cycle, well you say, okay, well implied volatility on Netflix is 64. So the implied volatility in Netflix is actually higher than SPY, so wouldn't we wanna sell options in Netflix instead? Not necessarily, because what we wanna do is if we go back to the chart, we wanna make sure that the implied volatility of those options is high relative to itself. So the implied volatility in Netflix is gonna be different from that than the implied volatility in SPY. So if you just look at the option chain, you may not be able to tell if implied volatility is higher or low, and that right there is why we use the indicator. So you can see in the last year, specifically in the symbol that you're looking at is implied volatility higher or low for that specific symbol. And so as you can see, the way we have our chart set up, if you go through and click on any symbol, you've got Apple, you can see the IV rank and the IV percentile specifically for Apple, you can see it specifically for Amazon, and you can see it for any equity or ETF that you trade. And the last thing I wanna point out about implied volatility, if we go back to SPY, we go back to the option chain, I mentioned that most indicators are lagging indicators. I mean, they're simply plotting a price or they're plotting something that's already happened. Here's why implied volatility is actually a forward-looking indicator or a forward-looking projection. If you go back to the option chain, right here next to where I showed you what the monthly implied volatility is of that specific cycle, right next to it you'll see a number that has a plus or minus sign right in front of it. And so what this tells you is that over the next 44 days, the expected range of SPY is plus or minus, call it $39. So plus or minus $39. So what does that do for us? That gives us an indication of the potential range of SPY over the next 44 days. It's not something that's happened in the past, it's what is expected going forward. So if we go back to the charts and we can say, okay, right now, SPY is trading at $245. So we said it's plus or minus $39. So we could say, okay, we might have a low range of about 205. So in this area here, about 205 and $39.40 to the upside would be about 280ish, a little over 280. So right there. So between there and there, that's our expected range over the next 44 days. And that's helpful when you're putting on positions to where you set your break evens, where you set your strikes and how you structure the trade overall. Hopefully that gives you a better understanding of implied volatility and more specifically the difference between IV rank and IV percentile. If you're interested in putting this indicator on your charts, you can do that for free. Just go to our website, navigationtrading.com. Just click on the big orange, get started now button. When you click on that, just sign up for a free membership. And basically what you're gonna get there is not only the indicator, but you're going to get our free course trading options for income. You'll get our watch list of the symbols that we trade every day. And you can get the script for that indicator where you can just copy and paste it, load it up to your chart so that you can view it on your charts exactly like we just showed. Hopefully that helps. Everybody take care. See you next time.