Every option decision runs into one question: am I better off buying premium or selling it?
Direction does not answer it. Volatility does.
Implied is a forecast, realised is a fact
Implied volatility is what the market is charging today for expected movement. It is a price, not a measurement.
Realised volatility is how much the underlying actually moved. It is a measurement, calculated after the fact.
The relationship between them is where the money is:
- Implied above realised — options are expensive relative to what happened. Favours sellers.
- Implied below realised — options are cheap relative to what happened. Favours buyers.
Across long periods implied runs slightly above realised, which is the structural edge behind premium selling. But "slightly, on average, over years" is not a trade. You need to know about now.
IV rank: the reference point
An India VIX of 14 tells you nothing on its own. Fourteen is low if the last year ranged 11 to 30, and high if it ranged 9 to 16.
IV rank fixes this by placing current IV inside its own recent range:
IV rank = (current IV − lowest IV) / (highest IV − lowest IV) × 100
Over a one-year lookback, an IV rank of 80 means current volatility sits higher than 80% of the range it has occupied. That is a statement you can act on.
| IV rank | Reading | Structurally favours |
|---|---|---|
| 0–25 | Cheap for this instrument | Buying premium — debit spreads, long options |
| 25–50 | Below average | Mildly favours buyers |
| 50–75 | Above average | Mildly favours sellers |
| 75–100 | Expensive for this instrument | Selling premium — credit spreads, condors |
The four regimes
Combining the direction of IV with its level gives four environments, and each one rewards different behaviour.
Low and falling. Quiet, drifting markets. Premium is cheap but there is little movement to profit from. Buying is inexpensive; selling pays badly. The temptation is to sell anyway for the small credit — a bad habit that gets paid for later.
Low and rising. Often the most rewarding for buyers. Volatility expanding from a low base means options are still cheap and about to become more valuable. Contractions on the chart frequently precede this.
High and rising. Crisis conditions. Premium is rich, and selling into it feels like free money — but this is precisely where sellers get destroyed, because IV rising means the market is repricing risk upward for a reason.
High and falling. The premium seller's ideal. Volatility is elevated but normalising, so you collect a rich premium into a tailwind. Typically the days after an event resolves.
Feeling vega directly
Greeks playground
Move one slider and watch which Greek reacts. That relationship is the lesson.
- Price
- ₹200.85
- Delta
- 0.529
- Gamma
- 0.00086
- Theta / day
- -15.45
- Vega / 1%
- 13.22
- Rho
- 2.399
Advanced
Delta is how much the option price moves per 1 point of spot, and roughly the chance of finishing in the money. It sits near 0.5 at the strike and flattens towards 0 and 1 at the wings.
Two things worth doing:
Set days to 30, then drag to 3. Vega collapses. Long-dated options carry volatility exposure; weeklies barely do. If your view is about volatility rather than direction, a weekly option is the wrong instrument.
Set days to 30 and move the IV slider from 12% to 25%. Watch the price. That change alone — with spot untouched — is what buying an option before an event and selling after really involves.
Term structure
Different expiries carry different IVs, and the shape tells you something.
Normal (upward sloping) — further expiries price higher, because more can happen over more time. This is the resting state.
Inverted (downward sloping) — near expiries price higher than far ones. The market is pricing a specific near-term event: a result, a policy decision, a crisis.
An inversion is a signal in itself. It says the market expects something soon and specific, which is a different situation from generally elevated risk.
A practical routine
Before any option position:
- What is IV rank? Current IV against its own last-year range.
- Which way is it moving? Rising or falling over the last few sessions.
- Is the term structure normal or inverted? Inversion means a dated event.
- Then choose: buy premium in low ranks, sell in high-and-falling, and stand aside in high-and-rising unless you have a specific reason.
Four questions, under a minute, and it prevents the single most common expert-level error: correctly reading direction while taking the wrong side of volatility.
Check yourself
0 of 4 answered1.India VIX is at 14. What can you conclude?
2.IV rank is 90 and rising sharply. What does the rising part change?
3.Your view is that volatility will rise, with no directional opinion. Why is a weekly option a poor instrument?
4.Near-month options are pricing higher IV than far-month options. What does this inverted term structure suggest?
What to take away
- Implied is a price; realised is a measurement. The gap between them is the edge.
- A volatility level means nothing. IV rank against its own history means something.
- Compare an instrument to itself, never across instruments.
- Four regimes: low/falling, low/rising, high/rising (dangerous), high/falling (the seller's ideal).
- Vega dies near expiry. A volatility view needs a longer-dated option.
- Inverted term structure = a specific dated event, not general risk.