IV percentile: is the premium rich or cheap today?
Option sellers have one job: sell premium when it is expensive and stay away when it is cheap. The problem is that "expensive" is relative. A NIFTY straddle worth ₹180 two days before expiry may be rich in a calm month and cheap in a volatile one.
The fix: same time, same distance to expiry
Take today's straddle as a percentage of spot. Now look at the same clock time on each of the last twenty expiry cycles, at the same distance from expiry. If today sits above 75% of them, premium is rich; below 25%, cheap. That is the straddle percentile. Do the same with the implied volatility you back out of the straddle and you have the IV percentile.
Why not just use VIX?
India VIX is useful and worth watching (its one-year rank tells you the broad regime), but it is a 30-day number for one index. Your trade is a specific expiry on a specific day; the percentile against past cycles is the like-for-like measure.
How the numbers move through the day
Straddles decay in a curve, not a line: fast in the first hour, flat through lunch, fast again into the close on expiry day. Plotting today against the median of past cycles shows whether you are early, on schedule or late. The terminal's IVP panel draws exactly that chart and updates the percentile every minute.
A rule of thumb
Sell when the straddle percentile is above 60 and the day's realised range is running under expected; stand aside below 30 or when the range is expanding. The VIP Indicator SELLER engine bakes both checks into its score on NIFTY and BANKNIFTY.
Keep reading
- How to read an option chain in five minutes: OI, PCR, max pain and walls
- Expected move: what the ATM straddle is telling you before you trade
- OI build-up explained: long build-up, short build-up, short covering and long unwinding
- Market structure for option traders: break of structure and change of character