Implied volatility (IV) is the level of stock price volatility implied by an option’s price, expressed as a percentage. For example, 35% is normal rather than high, but 85% is rather high. An abnormally high option price suggests - but does not actually forecast - imminent higher volatility in the stock’s price. There are three main reasons why premium and therefore IV get high:

Covered call writers love high-premium plays, but we have to pay attention to the fact that premium is high for a reason. Since IV just might be high because of impending news, and that news could be very important, it pays to look for news. Searching out the news is not an absolute requirement for covered call success, but the smaller, less established and less profitable the company is, the more important it is to track down the source of high IV.

Stick with established, profitable companies that are growing earnings – always the best bet for covered calls.