Hi/Low Indicators and Mean reversion
Hi/Low indicators show whether the current value of any parameter is closer to its minimum and maximum reached for the previous 52 weeks.
\( \text{HL Indicator} = \frac{\text{Current} - \text{Low}}{\text{High} - \text{Low}} \)
Its values are in [0;1]. 0 means that the new low value was reached; 1 signifies a new maximum was reached. The IVolatility.com database keeps the High/Low Indicator for many parameters. The High/Low indicator for the IV index allows one to track IV extremes. The highest value of the IVIndex indicates the options on this day were the most expensive for last year; the lowest value indicates the date where options were the cheapest during last year. By taking the current value of IVIndex and calculating where it is now on the High/Low scale, one can conclude how expensive or cheap options are today. The highest value of HV indicates that a stock's returns movement in recent days has changed greatly, while the lowest value indicates tsmall changes in returns. Accordingly, the HV Hi/Low indicator shows how volatile the stock was recently in comparison with its highest and lowest levels.
It is known that volatility has a so-called "mean reversion" property, i.e. tendency to return to a mean or average value after reaching extremes. Looking at the High/Low indicator you can estimate whether an extreme is reached.