Overnight gaps in stock prices offer potential trading opportunities, but implied volatility levels significantly influence outcomes, according to a comprehensive market analysis. The study examined SPY movements from 2017 through 2025, comparing gap behavior across different volatility regimes.

In moderate volatility environments (IV 15-30), traders find the most consistent patterns, with 1-2% upward gaps continuing 70% of the time and downward gaps typically bouncing back. High volatility periods (IV 30-60) act as "reversal machines" where chasing big moves often proves counterproductive.

2025's market behavior has shown distinct patterns, with moderate downside moves providing buying opportunities while upside gaps during high volatility periods have been more suitable for fading. The key takeaway: assess implied volatility before developing a gap trading strategy, as identical price movements behave differently across volatility environments.