This lesson will explore the IB Volatility Lab which is a useful trader dashboard providing a snapshot of past and future readings for volatility on a stock, its industry peers and some measure of the broad market. Use the Volatility Lab to compare and contrast the option market’s view on the volatility of a stock over the coming months. We’ll take a look at how to view implied and historical volatility and industry comparisons, and much more!
The IB Volatility Lab is a useful trader dashboard providing a snapshot of past and future readings for
volatility on a stock, its industry peers and some measure of the broad market. Use the Volatility Lab to
compare and contrast the option market’s view on the volatility of a stock over the coming months.
The Volatility Lab is laid out in three tabs indicated at the lower left corner of the screen to include
snapshots for Implied Volatility (IV), Historical Volatility and an Industry Comparison.
The Implied Volatility Window displays the measure of anticipated volatility of the stock using prevailing
option premium. The plot allows the user to display the implied volatility reading for any available
expiration. Each expiry is color-coded with the reading for implied volatility measured on the right axis
and the stock price is shown on the left axis using the gray line. Choose the time period from the
The Volatility Profile Window displays side-by-side over time, the Historical and Implied readings of
volatility. Add or remove either measure from the screen by clicking on the checkbox. The investor may
be able to gauge how far the two measures deviate over time in response to market shocks or as the
underlying share prices track higher or lower. Remember the tool wrench icon, which in this case
displays the Volatility Profile Comparison for the security to that of select competitors.
The Multi-expiry Skew panel displays the “volatility smile” created by the premium paid for options at
selected expirations. Because an option’s premium is significantly comprised of the reading of implied
volatility, an option trader is concerned by the respective cost of calls and puts at strike prices above and
below the prevailing price of the underlying shares. When investors are more willing to pay higher
premiums for in-the-money calls or out-the-money puts, the volatility curve may show a skew to price
points below the prevailing share price. Use the Custom Calendar dropdown menu to drive the same
view to any available prior date. The user can then compare how long a particular condition may have
been in place.
Skew Comparison allows the user to view the skew on a specified expiration date for the ticker and its
industry peers, any of which can be unchecked above the plot to remove them from the display.
Because we could be viewing stocks or an index with hugely different prices, the x-axis defaults to
Moneyness rather than any individual share price.
Time lapse Skew – An option trader may be interested to know how a price skew has evolved. Here the
user can plot the current volatility skew for a selected expiration and the panel allows comparison to
prior periods. This enables investors to identify changing conditions in the option market or perhaps to
identify a catalyst that caused a skew to occur or disappear.
Open Interest – The final window on this page allows the user to view current or historic open interest
for available contract months and strikes. Choose any available expiry and view the combined put and
call reading of open interest. The plot can be restricted to specific strikes or set to view the open interest
across all strikes. Use the calendar dropdown menu to view data from prior dates. Expand the wrench
tool to display modes for Open Interest and Option Volume. The Chart dropdown allows the user to
determine whether to see volume or open interest for Puts and Calls combined in one chart or broken
out into bull and bear contracts in two charts.
Select the Historical Volatility Tab at the bottom of the page to view the Historical Volatility plot. This
plot defaults to the 30-day reading of both implied and historical volatility plotted against the share
price over a custom period. Investors may want to see how high and for how long volatility measures
rise or fall when they experience significant swings driven by movements for the underlying share price.
Select the Industry Comparison Tab along the bottom of the screen to compare one stock’s volatility
measures against those of comparable companies in the same industry group.
Custom Comps – The Company is grouped in the upper table with its competitors along with a share
price and volatility comparison. Users can include several related companies by checking the boxes to
the left of the ticker.
Comparison (Implied Vol.) – The measure of volatility for each of the selected companies appears below
in the Implied Volatility Comparison window along with the share price of the company under analysis,
which is plotted as a gray line in the background. Change the mode to isolate a view of Implied or
Historical volatility or select the default Comparison view.
Underlying Price – Users may compare share price performance for the chosen underlying with its peer
group –Any tickers you may have entered in the Volatility Comparison plot will show up here, but these
can be removed by deselecting them above the chart. The time period is again configurable by selecting
the drop down menu to the upper right of the chart.
The Volatility Comparison tab allows the user to compare Historic and Implied volatility on a stock using
either daily or annual readings for volatility.
The IB Volatility Lab provides the option trader with an excellent dashboard for reviewing past volatility
readings and option market-expected readings for volatility on a stock. You should remember to explore
the many configurations available behind the plots using the Wrench Icon.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Supporting documentation for any claims and statistical information will be provided upon request.
Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or click here. Multiple leg strategies, including spreads, will incur multiple commission charges.