Traders,

Implied volatility (IV) is the metric used to measure options demand. When demand rises, IV climbs. When demand falls, IV retreats. Remember, there are hundreds, sometimes thousands, of listed options on a single stock. There are many different expiration months and loads of strikes for each.

To simplify IV, we usually use short-hand indicators like IV Rank or implied volatility which looks at the IV for various strikes and months, averages them out, and presents a single number. But when you dig deeper, you realize that every single option has its respective IV.

And it makes sense. The demand for a one-week ATM call in AAPL might be vastly different than the demand for a two-month OTM put option. Indeed, given the popularity of covered calls and protective puts, OTM calls trade with lower IV, and OTM puts trade with higher IV.

It’s a concept known as volatility skew, and it’s easy to see in an options chain.

Options Chain & IV

This is an options chain for AAPL Feb options. Note how the IV for OTM puts rises from 34.85% to 54.54% as you move further OTM. Meanwhile, the IV for OTM calls remains around 32%.

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