Volatility

IV/HV Ratio (IV/HV, IV-HV ratio)

The IV/HV ratio divides the implied volatility of an underlying by its historical volatility. A value above 1 means the options price in more movement than the price has recently shown.

Calculation and mechanics

The numerator is Implied Volatility with 30 days to expiry, the denominator Historical Volatility over a comparable window, in Foliograph 20, 30 or 60 trading days. Both values are annualised and quoted in percent. Their ratio is therefore a plain number without a unit. With IV at 24% and HV at 16% the ratio is 1.5.

The ratio is related to the volatility risk premium but not identical with it: in the literature that term usually denotes the difference between implied volatility and the volatility subsequently realised. The IV/HV ratio compares the current implied volatility with the volatility already realised in the past. Historically, implied volatility on broad equity indices has often been above the volatility actually realised afterwards. The ratio shows how large that premium currently is for a single underlying.

IV/HV = IV 30 days / HV window

Distinction

IV Rank compares IV with its own past, the IV/HV ratio compares it with present price movement. An ETF can have a low IV rank and a high IV/HV ratio at the same time if its price barely moved in the last weeks.

Because the denominator depends on the chosen HV window, the ratio is only comparable within the same window length.

Related terms

All terms in the glossary

All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.