How to Use Implied Volatility Rank to Find the Best Covered Calls to Sell This Week

The Short Answer: IV Rank Tells You When Premiums Are Worth Selling

Implied Volatility Rank (IVR) measures where a stock's current implied volatility sits relative to its own range over the past 52 weeks. When IVR is high — say, above 50 — options are expensive compared to their historical norm, which means you collect more premium for the same risk. That is the core reason covered-call sellers track IVR every week before picking a trade.

If you skip this step, you risk selling calls when premiums are thin and the risk-reward is poor. A stock with an IVR of 10 is paying you near-minimum rent on your shares. A stock with an IVR of 70 is paying you closer to peak rent. Same house, very different income.

What IVR Actually Measures — and How It Differs from IV

Implied volatility (IV) is the market's forward-looking guess at how much a stock will move, expressed as an annualized percentage. The Options Industry Council (OIC) defines it as the volatility value that, when plugged into an options pricing model, produces the current market price of the option.

IV alone is hard to act on. If AAPL has an IV of 28%, is that high or low? You need context. IVR provides that context by answering: where does 28% sit within AAPL's 52-week IV range?

The formula is straightforward:

IVR = (Current IV − 52-Week IV Low) ÷ (52-Week IV High − 52-Week IV Low) × 100

Example: AAPL's 52-week IV low is 18%, its high is 45%, and today's IV is 28%. IVR = (28 − 18) ÷ (45 − 18) × 100 = 10 ÷ 27 × 100 = 37

An IVR of 37 means current IV is in the lower-middle of its annual range — not ideal for selling premium, but not terrible either. You would want to see IVR above 50 before getting aggressive.

The Weekly Screening Process: A Step-by-Step Filter

Most retail brokers — TD Ameritrade/thinkorswim, Tastytrade, Interactive Brokers, and others — display IVR or a close cousin called IV Percentile directly on their options chains. Here is a repeatable process you can run each Sunday evening or Monday morning.

Step 1 — Pull your holdings list. You can only sell covered calls on stocks you own in 100-share lots. Start there.

Step 2 — Sort by IVR descending. Any position showing IVR above 50 is a candidate. Above 70 is a strong candidate. Below 30, consider waiting unless you need the income.

Step 3 — Check the earnings calendar. The CBOE and most brokers flag upcoming earnings dates. High IVR right before earnings is often a trap — IV collapses after the announcement (called an IV crush), and your call may expire worthless for the wrong reason while your stock gaps down. Many experienced covered-call sellers skip earnings weeks entirely or close the position before the report.

Step 4 — Pick your expiration. Weekly options (7 days out) capture theta decay fast but require active management. The 21-to-45 day window is the most commonly cited range for balancing premium collected versus time commitment, as noted by the OIC in its covered-call strategy guides.

Step 5 — Select a strike using delta as a guide. A delta of 0.20 to 0.30 on the call side means roughly a 20–30% probability the option finishes in the money. That is the typical sweet spot for income-focused sellers who want to keep their shares.

Worked Example: Selling a Covered Call on NVDA Using IVR

Let's walk through a real-numbers example using NVIDIA (NVDA).

Assume it is a Monday morning. NVDA is trading at $127.50. You own 100 shares. Your broker shows: — Current 30-day IV: 52% — 52-week IV low: 30% — 52-week IV high: 85% — IVR: (52 − 30) ÷ (85 − 30) × 100 = 22 ÷ 55 × 100 = 40

An IVR of 40 is moderate. Not ideal, but workable if you need income this week.

You look at the options chain for the expiration 28 days out. The $135 call (roughly $7.50 out of the money, or about 5.9% above spot) is showing: — Bid: $2.10 — Ask: $2.25 — Delta: 0.26 — Implied move: moderate

You sell one contract (100 shares × $2.10 bid) and collect $210 in premium, minus commissions.

Breakeven on the downside: $127.50 − $2.10 = $125.40. Your shares have to fall below $125.40 before you are worse off than if you had held without the call.

Maximum gain: If NVDA closes at or above $135 at expiration, your shares get called away at $135. You keep the $210 premium plus the $7.50 per share gain from $127.50 to $135, for a total of $960 on 100 shares over 28 days — a 7.5% return on the position.

Now compare this to a scenario where IVR is 15. The same $135 strike might only offer a $0.65 bid. You collect $65 instead of $210 for the same capped upside and the same downside exposure. That is why IVR screening matters before you enter.

Risks You Need to Know Before You Filter for High IVR

High IVR is not free money. Here is what can go wrong.

The stock drops hard. High IV often signals that the market expects a big move — and that move can be down. You keep the premium, but your shares lose more value than the premium offsets. The covered call reduces your loss but does not eliminate it. FINRA reminds investors that covered calls do not provide full downside protection — they only reduce cost basis by the premium received.

IV crush works against you in reverse. If you sell a call when IVR is high and IV drops sharply before expiration, the call loses value fast — which is good if you want to buy it back early for a profit. But if you were counting on the stock staying flat and IV staying elevated, a sudden drop in IV can make the position behave differently than expected.

Assignment risk. If the stock rallies past your strike before expiration, you may be assigned early on American-style options, especially around ex-dividend dates. The OIC covers this in detail in its options education materials. Early assignment means your shares are sold at the strike price, and you miss any further upside.

Tax treatment. In the US, the IRS treats premiums from covered calls as short-term capital gains in most cases. If your call is deep in the money, it can also affect the holding period of your underlying shares and potentially disqualify a long-term capital gains rate. The IRS Publication 550 covers investment income and expenses, including options. Canadian investors should check CRA guidance, as the treatment of option premiums depends on whether you are considered a trader or investor under Canadian tax rules.

How to Build a Simple IVR Watchlist You Can Reuse Every Week

You do not need expensive software. Here is a low-friction system.

Create a watchlist in your broker platform that includes every stock you own in covered-call-eligible lots (100 shares or more). Add columns for 30-day IV and IVR (some platforms call it IV Rank or IV Percentile — they are similar but not identical; IV Percentile counts the percentage of days IV was below the current level, while IVR uses the high-low range formula).

Every week, sort the list by IVR high to low. Flag anything above 50. Cross-reference with the earnings calendar. What remains is your shortlist for the week.

For widely held names like AAPL, MSFT, SPY, and NVDA, IVR data is almost always available on free platforms like thinkorswim's paperMoney account or the CBOE's website. SPY covered calls are particularly popular because SPY has no earnings risk and extremely liquid options markets, though its IVR tends to stay lower than individual stocks.

One practical rule many covered-call traders use: if nothing on your list clears an IVR of 35 or higher, it is acceptable to sit on your hands that week. Forcing a trade in a low-IV environment is one of the most common mistakes new covered-call sellers make. Patience is a position.

What is a good IVR to sell covered calls?

Most covered-call sellers look for an IVR above 50 before selling, which means current implied volatility is in the upper half of its 52-week range. An IVR above 70 is considered strong and typically produces meaningfully higher premiums. Below 30, premiums are usually thin enough that many traders prefer to wait for a better setup.

Is IV Rank the same as IV Percentile?

No, they are related but calculated differently. IV Rank uses the 52-week high and low to place current IV on a 0–100 scale. IV Percentile counts how many trading days in the past year had IV below the current level. Both measure whether IV is elevated, but they can give different readings for the same stock on the same day, so check which one your broker displays.

Should I sell covered calls before earnings if IVR is very high?

Most experienced covered-call sellers avoid selling into earnings even when IVR is high, because IV collapses sharply after the announcement regardless of which direction the stock moves. If the stock drops on earnings, you keep the premium but face a larger loss on your shares than the premium covers. Many traders close or avoid covered-call positions at least one week before a scheduled earnings date.

How far out of the money should my covered call strike be?

A common guideline is to target a call delta between 0.20 and 0.30, which corresponds roughly to a 20–30% probability of the option finishing in the money at expiration. This typically places the strike 3–8% above the current stock price depending on how volatile the stock is. Higher IVR environments allow you to go further out of the money and still collect meaningful premium.

Can I use IVR on ETFs like SPY for covered calls?

Yes, and SPY is one of the most liquid options markets in the world, which means tight bid-ask spreads and easy fills. SPY's IVR tends to be lower than individual stocks because it is diversified and has no single earnings event. It is a solid choice for conservative covered-call income, especially when individual stock IVR is also low across your portfolio.

How does selling covered calls affect my taxes in the US and Canada?

In the US, the IRS generally treats covered-call premiums as short-term capital gains, and deep-in-the-money calls can affect the holding period of your underlying shares — see IRS Publication 550 for details. In Canada, the CRA's treatment depends on whether you are classified as an investor or a trader, which affects whether premiums are taxed as capital gains or business income. Both US and Canadian investors should consult a qualified tax professional before starting a covered-call program.