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Definition, Examples & Resources:Implied Volatility [Contract]'

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What is Implied Volatility [Contract] in Options Trading ?

Implied Volatility [Contract]
Implied Volatility [Contract] defines the individual contract's or spread's implied volatility.  Implied volatility at a contract level is the volatility implied for the future by the contract's current pricing. Traders should distinguish between the underlying implied volatility (a VIX-like implied volatility average) and the contract/spread level implied volatility.  A normal behavior is to see higher implied volatility than the average as the contracts go further out of the money (OTM) and lower implied volatilities at or in the money (ATM or ITM).

How to Use in Your Brutus Options Ranker Strategy

Implied Volatility (Contract) can be added to your Brutus Options Ranker strategy in a few ways depending on your objective:

Maximizing Implied Volatility [Contract]: Maximizing this criterion will give preference for more expensive options. This is great if you deploying a net-short options strategy. However, this will cause Brutus to search for options further out of the money (OTM) and therefore the criteria should be balanced with other criteria (such as maximizing liquidity criteria, minimizing Gamma, or targeting Delta to a specific value).

Minimizing Implied Volatility [Contract]: Minimizing this criterion will give preference for cheaper options. This is great in net-long options setups. As with maximizing, this should be balanced with the overall cost of the setup as minimizing implied volatility at the contract or spread level will give preference for options at or further in the money.

Targeting Implied Volatility [Contract]: Targeting implied volatility on the contract or spread may be used if you are looking to trade at a specific implied volatility level.

Where to find Implied Volatility [Contract] in the Brutus Options Ranker Criteria Panel

Implied Volatility [Contract] can be found on the Strategy Tree Builder page within the Brutus Options Ranker under the Criteria List Volatility Panel.

Video on Implied Volatility [Contract]

Broader Term

  • Options Pricing
  • Narrower Term

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