Low IV = selling, high IV = buying?

[longandshort]

The IV of an option is the "spread" -- higher spread is driven by liquidity premia and uncertainty around the future. So higher/lower IV represents high/low liquidity + high/low uncertainty.

If a company reports earnings in the next month, and the option contract expires after the earnings announcement date, you will see it's IV is much higher than the current month's IV (+/- liquidity effect).

This is not a signal of direction, it is a signal that something is happening to the underlying. You can then analyze the situation and decide how to play it.

 

[guru]

The phrasing smacks of Investopedia cuteness. But whenever an option contract is "sold", it is also being "purchased" from the counterparty's view. (As per any good/service in any market.) At any time, there will be precisely as many "sellers" as "purchasers" for any set of option contract transactions.

This might be conflated with option creation v. open interest (versus a fixed quantity item like equity shares) -- but that is a whole 'nuther kettle.

But why the IV fluctuates then, sometimes shooting through the roof, even when there are no earnings or other upcoming events?
You also need to distinguish between buying/selling by traders vs wholesalers (MMs). Traders may be desperate to buy an option and will continue bidding it up, while MMs won’t be bidding like crazy or desperately trying to sell one.