VRP

Adventurous-Car3480

Silver is extremely liquid (easy to sell). The term OP is describing is the Volatility Risk Premium (VRP)

ChairmanMeow1986

Listen to everyone telling you to sell. I'm I personally bullish, yes, do I think it could go higher into Friday yes, but this is basic risk management looking at the Trade you have running. First, and *least* important you are now going to be running into the period where Theta becomes a notable negative multiplier on *extrinsic* value if you end up holding around or below this price. I do not recommend this and think you should close the position judiciously tmrw, but at least roll up and out to secure profits and reset your Trade. You buying lottery tickets, gambling (no hate, it's all risk mgmt), or learning a skilled trade? More importantly though is the premium to cost buy right now versus to just close (i.e. Realized Volatility effect on IV, that leads to IV crush). If you are truly that bullish on ONDS and I am bullish on ONDS you can pour those profits in to shares preferably over a couple-few different buys instantly if you want to avoid Vega (i.e. this is a VRP-Risk-Volitlity Premium context). The risk here is Mean Reversion on news, not fundamentals. Timelines align, I think drone stocks are an incredible growth area *overtime*, but the fact that all drone stocks in my holdings and watch lists (ONDS, RCAT, AVAV, KTOS, LMT, LHX, etc) show this is a *sector pump* on potential news. That's just an exit with 650% profits with a Jan deadline. Flat out. Don't be overly greedy, reset the winners too.

raoyvn

i just pasted some of threads to learn more about what books might be useful . Here are the essential books for Systematic Volatility Arbitrage, categorized by their role in your learning path. # 1. The "Bible" (Foundational Theory) **"Option Volatility & Pricing" by Sheldon Natenberg** * **Why it’s relevant:** This is usually the first book given to new professional floor traders. It teaches you to stop looking at stock price and start looking at the **theoretical value** of an option. * **Key Focus:** Greeks, simple volatility math, and the relationship between different strategies. If you don't master this, you can't understand the "billions of backtests" logic. # 2. The Professional Practitioner’s Edge **"Volatility Trading" by Euan Sinclair** * **Why it’s relevant:** Sinclair is a physicist and professional trader. This is arguably the best book for a retail trader moving into the $50k–$2M range. He focuses on finding a **statistical edge** (the VRP) and sizing trades using the Kelly Criterion. * **Key Focus:** Estimating realized volatility, managing psychological bias, and why "cheap" options are often cheap for a reason. **"Trading Volatility: Correlation, Term Structure and Skew" by Colin Bennett** * **Why it’s relevant:** This is a rare, highly practical guide to how institutional desks actually trade **skew and term structure**. It explains exactly how to trade the "shape" of the volatility curve, which the trader you mentioned specializes in. * **Key Focus:** Index vs. Equity volatility, the "smile," and how dividends/carry affect option pricing. #

dirty_F0x

If you are interested into vol strategies, there are now a few software out there targeting retail traders and get close to what you find quant traders use. I have tested all of the one below and will give you my honest opinion: \- UnusualWhales: Great idea when it came out, but it is impossible to make money out of that thing. I would stay clear if you actually look for edge, but they have nice viz and sometimes it's nice to spend a friday afternoon looking for weird flows on obscure tickers. \- Spotgamma: this one is one I don't believe why it is so popular. Purely focus on directional trading and more specifically 0dte. They have supposedly some prop measures to compute dealer exposure, but when you talk with pros and do your due diligence a little, they all tell you the same thing: this is a fantasy and the market doesn't work like this. Unless you trade billions and work as a flow trader, there is no edge for a retail trader here. But again, nice app, great content. One last thing: do not ask annoying question about showing edge and profitability over time, you will get banned. \- Moontower ai: great tool from Kris who has been writing so much about vol trading over the years. He has worked at SIG for many years and knows what he is doing. He is focused on vol strategies, particularly the VRP. Now, my honest take is his tool is confusing and if you do not have his level of expertise, you are still left "guessing" or using your own experience to find what is the best trade. \- Sharpe two: amazing tool by Ksander. He uses ML to score where you should short or long vol on many tickers. And ... well it works. The guy has a background in trading and ML and ... it shows: he writes on substack and hasn't had a losing trades in 6 months. The tool is easy to use once you understand the concept of probabilities. What I love is the model output the reason why it makes a prediction which is very handy to keep learning and not just follow a black box. The downside: it requires some reframing of how you think trading. He doesn't do directional trading at all and is almost exclusively in ETFs. Def worth checking. I'll finish with Predicting Alpha who wishes they were what Moontower and Sharpe Two is. Except ... they are not. I lost a lot of money with them because their data were not accurate, but also they do not have a trading background. And how much Sean can be a nice guy, when shit hits the fan, you want to be in the community of someone who knows what he is doing. That's why I prefer Kris and Ksander's stuff: I learn a ton with Kris, I make money with Ksander.

Jammer250

Open to read other research, but according to the below, VRP is indeed more variable/wider in high-vol environments. Across deciles, VRP as a relative percent is fairly similar - but on absolute terms, it is indeed higher in high-vol. But again, on a risk-adjusted basis, low-vol VRP is more reliable. [https://alphaarchitect.com/in-calm-markets-should-we-buy-cheap-put-protection/](https://alphaarchitect.com/in-calm-markets-should-we-buy-cheap-put-protection/)

Jammer250

VRP in absolute terms is not higher in low-vol, but certainly less mechanical risk than trying to sell fat premiums into high VIX spike periods. Certainly a risk-adjusted tradeoff in poorer returns for more probability, rather than swinging for the fences.

sharpetwo

It is extremely hard to time a vol spike. The best you can do is often routinely buy cheap lottery tickets. You can use VRP or the term structure (the contango may be too pronounced) but these are rarely great predictors of volatility snapping back up. It clusters and can stay low for a long time before a new catalyst bring the market back to its senses.

Frequent-Sympathy663

IVR has nothing to do with RV so you can sell Gamma and still make money (and usually VRP high in a low vol environment

PapaCharlie9

You're assuming that the only factors influencing the underperformance of the CC funds is market risk, but that is not true. There are unrewarded risks and overhead costs. If there's 0.7% potential edge in VRP and the fund is spending 1.0% in overhead costs, netting a -0.3% return, taking the other side will not be profitable, even if you can do so at zero overhead.

sharpetwo

Everyone one is a good girl... sorry I meant stock, until Mr Swan comes to pick his due. Also collecting premium means nothing.. if the premium is not there. Collecting premium in index since May has worked perfectly. It was horrible between December 2024 and April. So either you do it systematically and you must be okay with some period where you will underperform B&H and sometimes substantially, or .... well you start trading volatility, harvesting the VRP when the regime is there, or selling skew in a different regime. And ideally all of that with a tiny directional exposure, and only because we know that overtime, index go up. The rest is shortcut for retail traders not willing to see beyond the easy recipes, and happy with their "little strategy that works for me."

Ma4r

The point is your overall strategy settles down as 20 delta short of the stock, with near neutral gamma exposure and positive theta. This is just VRP harvesting/gamma scalping, but with weird second order greeks. Unless you can tell off the back of your head what your vanna exposure is i do not recommend you run this trade

shock_and_awful

Easy? What are you smoking? Everything you just listed out can be learned. Do you agree? I’m a retail trader and have been learning all the above, self taught over the last 5 years, with help from text books, free online lectures and channels like stat quest and the quantopian lectures. Has it been easy? No. Being passionate about it helps but it’s often a long hard road that - to my earlier point - has gotten easier in the last two years. VRP specifically, which is what we were talking about, is relatively easy to pick up by retail traders compared to some of the harder concepts in probability theory and statustics.

WorkSucks135

> and not waste time in these VRP strategies Some of the strategies you listed and advised people to stick to immediately before this statement are literally VRP strategies.

shock_and_awful

“It’s only for experts and quants” - The only things separating these folks from regular retail traders are knowledge and tools. Both easily attainable in this day and age. Steep learning curves are flattening everyday with tuned LLMs, and there are more tools coming out for research traders especially that make VRP research (and the like) much more accessible and easy to conduct.

esInvests

This is pretty much incorrect across the board. But I know you and I can’t have a logical discussion so I won’t bother. I will highly encourage you to research VRP on SSRN and see what you find for yourself.

wyterk

Dude this whole VRP selling thing is a scam. It's only for experts and quants. Most retail traders fail if they sell VRP without hedging. VRP is high for a reason on specific tickers and selling without proper research and hedging you are bound to fail. I would advise people to stick with basic put selling, market neutral strategies (butterflys, calendars with adjustments) and buying LEAPS and not waste time in these VRP strategies. I know you have a discord.

duqduqgo

The odds of 100 head or tail flips in a row is 1.26 \* 10\^30. Selling VRP is exactly the same as the insurance business model, collect premiums to assume risks. Occasionally you'll have a outsized loss, but the model itself has positive expectancy, mathematically

Ma4r

You're selling options, so if you boil it down you're getting paid for taking on tail risk (VRP). This is the good ol picking pennies in front of a steamroller strategy. You can have an edge if you find equities with rich VRP without the corresponding tail risk. How do you do that? If you don't want to get to the nitty gritty, it's backtesting, pick a theory, backtest it. If it works, then you MAY have something. An example with VRP: maybe you can add an invalidation to your current strategy, i. E if we identify vol clustering , maybe n losses in a row, then i wait x days before entering again, etc Or you theorize that a certain company is protected from black swan events because of their cash reserves, then you find a different company deep in debt, yet somehow they both have the same VRP? So if you do a deep dive and found nothing else, you could try going short VRP on one of them and long VRP on the other, like a pair trade. Of course this is oversimplifying the process, you need to backtest it and see how it performed in recent conditions, maybe even add a regime filter and an invalidation condition, etc. But usually the most robust ideas are the simplest. Recently i saw someone post about going long overnight and short intraday, they backtest it and identify conditions where their trades are valid etc. it's all just data analysis, no stat-arb required, you're just back testing, modifying your strategies, doing AB test of variations, etc. it's brute force work and some luck. Even the best quants go on a dry spiel where nothing they try work

FanZealousideal1511

There is no inherent edge in selling, VRP is hard to capture by the retail crowd.

sharpetwo

Good on you to start small. Avoid 0dte altogether. If you want to trade the VRP get at 30 dte - the signal to noise ratio increases nicely. Your trade becomes a much cleaner expression on volatility and less on the crazy whipsaw you see day to day.

Allislovetrustgod

Great reply. What are the rules for entry considering VRP? I've been doing credit spreads on 0dte based on tasty's methodology. But still not sure if I'm selling the right moments considering the IV. Still starting very small.

Ma4r

If you take any kind of credit option position in equities you are by definition taking on tail risk. It's the reason why implied vol in equities are systematically higher than realized vol, it's because equity returns have fat tails and when the tail happens they tend to be worse than are expected (or as the nerds call it, kurtosis and volatility clustering) . This is because there is asymmetry in long vs short arbitrage in equities, you see this fact appear all over the place, the IV skew, the fact that volatility in equities tend to mean downside, etc. You are taking tail risk, and getting paid in what's called the volatility risk premium. If you compare it to a market without that long-short asymmetry i.e FX market and options, you'll see the VRP almost completely dissapear

naked_space_chimp

Alright, I'm back with my shitty trades, initially was bullish on Tesla but the recent market trends suggest there could be a downside: * **NFLX (Netflix)** \[Earnings: Tuesday after close\] * 🟢 Bullish, this psycho always rips or tanks, but with their ad-tier/sub growth NLP pickup and market vibes, ride the greed wave. * Trade: Buy 1 Nov $1250 Call (fuck it, that’s the upside lotto, IV crush risk baked in). * Why: Earnings volatility, FOMO crowd, and fresh streamer narratives. * **TSLA (Tesla)** \[Earnings: Wednesday after close\] * 🔴 Bearish, because Elon’s Q3 is usually a goddamn clown show, and margin/tweet meltdowns always lurk, careful the short doesn't usually last long. * Trade: Buy 2 Nov $440 Puts. * Why: Chart’s tired, bearish drift post-deliveries, retail panic if they puke earnings. * **INTC (Intel)** \[Earnings: Thursday after close\] * 🟢 Bullish (sorta), big dogs still limp but expectations are under the floor; a decently-shitty quarter could pop this dead chip. * Trade: Buy 5 Nov $38 Calls. * Why: Contrarian play, everyone hates INTC; VRP juicy, solid for a reversion pop if they whiff less than expected. All OI/IV liquid as hell, and these pigs have enough drama to rock your account upside down so tread carefully, but hey, you wanna play the earnings don't you, because that 1 fucking time you made some money during earnings, so yeah lets fucking do it! **BOTTOM LINE:** Your risk is defined, upside’s violent, and the macro backdrop’s a powder keg. Don't love your trades, fight enough to live another day. Remember, your time will come, be there to take it, now go eat your Ramen.

Fun-Sundae4060

Basically it scans across a universe of ETFs to analyze different factors such as IV/RV, term slopes, IV skews, skew slope derivatives, IV percentiles and many other related signals. It then allows me to analyze which scenarios tend to create a positive EV when selling a specific option structure as well if there is statistical significance in each signal. The best and most statistically significant signals are used and combined to create entries with the primary goal to extract VRP which has already been proven in studies to be an inefficiency in the options market that can be capitalized upon. When multiple signals are combined, this creates an even stronger signal with greater EV, reliability, and win percentage. When backtesting this across real options data with simulated commissions, conservative bid-ask spreads, and bad fills shows a mean positive return or increased returns over the base strategy, it shows the signals were effective. So long as the signals still work well for predicting future EV, this model will continue to work in any market regime.

Fun-Sundae4060

You absolutely don’t need to be an institution to make great money selling options. I sell VRP via iron butterflies based on a quantitative model and my return has been about $18k on a $25k base account in the past 6 months. I actually just dipped my toes in with only $5k at first but added another $20k as the model proved successful. The only issue is that the model shows that this strategy will run into liquidity issues after an account size of $500k, so it’s not infinitely scalable like stocks are. Still, the returns and Sharpe are amazing even at a capped $500k account size. [https://imgur.com/a/loSsaZ0](https://imgur.com/a/loSsaZ0)

xRussianWintersx

By doing this, you’re essentially hoping for this EDGE: 0 DTE with 2.5 hours to expire IV > realized vol. Now there’s some evidence that there remains a small VRP in 0DTE, however after considering real life (slippage, b/o, commissions), EV of this trade will be negative, I.e, do this trade over a long period and you’d lose.

sharpetwo

Whether you do it ATM or OTM, it’s a short vol position dressed up as income strategy. You make money if realized vol comes in below implied, not because you collected the biggest premium at the first place. Going ATM gives you the fattest premium but as usual, there is no free lunch. You also have max gamma: at 30/45 dte it is less prevalent but not inexistent. More than ever, especially if you decide to not actively delta hedge, you earn the carry if the stock doesn’t move, but if it does, you bleed faster. Going OTM shifts/adds some of that premium into skew, meaning you’re getting paid not just for vol, but because people overpay for downside protection vs upside, or vice versa. It is a little more forgiving also if you decide to not delta hedge actively. The trade off is ... well less premium. Essentially OTM, and around 20 delta strangle are in most cases the closest proxy of IV (computed with model free, not computed with B&S) minus RV and that’s usually where the structural edge sits. There is nothing wrong with going ATM, as long as you have a view on that VRP using an ATM options: if IV ATM is significantly lower than IV at 20 delta, you may not want to avoid doing that trade ATM. Good luck.

Cantonius

I plugged my data into gemini and had it run deep analysis so this may help **Fed is signaling two more cuts.** (Market is pricing in easing monetary policy) **Massive Interest Rate Options Volume:** The largest structural risk exposure in the derivatives market is concentrated in interest rate options, with Open Interest (43.64 million contracts) dramatically overshadowing equity options (5.76 million contracts).This focus confirms that macro players are intensely positioning based on expected central bank policy shifts, validating your view on the rate cuts being the primary market driver.  **Capex spending in AI is at absurd levels.** (Mag 7 driving S&P 500 performance) **Extreme Equity Bullishness:** This sector-specific euphoria directly correlates with the extremely low Equity Put/Call Ratio (P/CR) of **0.50** . This ratio is deep in the historical "Extreme Greed" territory, reflecting concentrated call-buying and optimism in single names like those leading the AI surge.This extreme bullish concentration confirms the price action in major technology names.  **VRP is positive and shrinking.** (End phase of complacency) **VRP Robustly Positive, yet VIX is 'Normal':** The Volatility Risk Premium (VRP)—the difference between Implied Volatility (IV) and subsequent Realized Volatility (HV)—is structurally positive and highly monetizable . The VIX (IV) is currently in the **"normal" range** (17.24 previous close) , having decreased by nearly 24% from a year ago.This decline in implied price of insurance, while still maintaining a large VRP gap over HV (6.58% for S&P 500), is the very definition of late-cycle complacency where structural risk is underpriced relative to the underlying potential for sudden movement.   **Slope is normal contango.** (No immediate panic) **Steep Contango Structure:** This is a direct confirmation. The VIX futures curve exhibits steep **contango** (e.g., October 2025 futures at 14.99 rising to March 2026 futures at 21.39).This structural pattern reinforces the market expectation that current low volatility will gradually revert to a higher long-run average, explicitly ruling out the anticipation of an immediate, acute crisis, which would be signaled by backwardation.  **We’re in late cycle, drops can be violent.** **Aggressive Institutional Index Hedging:** The high probability of a sudden, violent drop is being explicitly priced by sophisticated investors. This is evident in the high S&P 500 Index Volume P/CR of **1.17**, which signals heavy defensive positioning, and the steep **volatility smirk** (negative skew) which makes Out-of-the-Money index puts significantly more expensive than calls . This confirms that professionals are heavily insured against the single-stock euphoria (Point 2) leading to a broad market failure.  

Cantonius

Main thing is Fed is signalling two more cuts, so market is pricing that in. Also, capex spending in AI is at absurd levels. The AMD partnership juiced the markets since sp500 40% is in mag 7. We're in late cycle so the drops can be violent. But VRP is positive and shrinking so we're in the end phase of complacency. As well slope is normal contango so no panic. Dispersion is still low but broad correlation so if a shock hits it can affect all sectors.

Ma4r

There is no 'abnormal' VRP because whatever VRP an equity has is because of the risks and upsides priced in. If you have a systematic way to identify mispricings then sure, it's a signal, but otherwise it's just a measure.

t-9d

Very interesting. I’m researching whether this factor, the measuring of volatility, in some way, could be a helpful confluence in trading strategy. A regimatic trading framework could essentially gate trading to only be allowed when VRP is below x, or vol of vol is above its average, etc As you say, it doesn’t predict price, but perhaps it has validity as a confluence. It reminds me of another type of phase 1 gate, in which practitioners will often observe the spot vix to be below a fixed level. This, in theory, is supposed to be a suitable environment for long entries, because it predicts a calm and gently trending market without much disagreement. It’s a piece of the puzzle. How big of a piece can it be? How much predictive power does it really have?

TradeVue

VRP is more of a regime signal than a timing tool it doesn’t tell you when something breaks , just how fragile or risk saturated the environment is When VRP compresses (implied vol way below realized), the market’s basically saying “nothing bad can happen,” which is usually when it’s most exposed to shocks. when it widens, you’re usually in or coming out of a stress regime volatility of volatility starts to matter more than direction I use it like a temperature gauge. Low VRP = consider staying small, hedge tails. High VRP = be selective and maybe fade panic, but don’t expect smooth trends. It’s not predictive, but it’s definitely a good risk context tool. I personally don’t trade with any technical analysis just probability and statistics and for me I only ever use it as a tool for context and market temp and NOT to solely execute trades.

sharpetwo

Yes, VRP can absolutely be used as a regime detector. When IV trades well above realized, the market is paying up for protection and fear is already priced in. When VRP compresses toward zero or negative, traders are underpaying for risk and that’s often when markets are fragile. Think of it like insurance pricing. When premiums are cheap, nobody’s hedging; when they’re rich, everyone already is. The nuance is in how you measure it, and what else you pair it with; vol of vol, the stability of RV and IV, and where spot vol sits on the curve. Those context clues tell you if the market is calm or dangerously complacent. So no, VRP won’t tell you when to sell. But it tells you when the floor is thin. Good luck.

t-9d

I appreciate your thoughts. Would you say that abnormally low/high VRP can give a glimpse into the markets forward outlook? As in, an abnormally VRP can predict a fragile, complacent market? Meaning, It doesn't tell you when a correction will happen, but it tells you that the market has no risk premium priced in, making it vulnerable to a sharp, fast drop on any negative catalyst. This can be a signal to tighten stops, take smaller positions, etc. On the other hand, a high VRP may predict a volatile chaotic market. It cant tell you where the bottom is, but it tells you to expect big price swings and sharp reversals. VRP measures the current tremors of risk, providing a probabilistic forecast of the future risk regime. But I agree, not a deterministic forecast of price.

Ma4r

VRP is just an investor's demand for premium in return for taking on tail risk, VRP will move accordingly depending on how price have moved in the past. You only have an edge if you can identify mispricings of VRP, but i wouldn't try something like that unless you have the infrastructure in place

t-9d

Can current pricing of VRP reflect expectations of future volatility?

Ma4r

No? You can only measure VRP after the fact, remember implied volatility is just another measure of demand for certain option contracts, it has no say to what the actual price movements are going to look like

iron_condor34

Don't listen to grok. lol The day we get an actual drawdown again, anything short vol is going to hurt real bad. Short vol works in the long run due to an overwhelmingly majority of the time that nothing is going in the market. So you make the consistent gains due to VRP. But you're going to lose a really nice amount when that day finally comes. Just know that and be careful doing so.

sharpetwo

You are doing the hardest thing: trying to trade options directional with a tiny account, with the most explosive options there is. That is like playing poker with half a stack at a table full of sharks. You might win a hand, but the odds are stacked against you. Volatility is not a free lunch. “Good vol” only matters if you are positioned to harvest it. For a small account, the problem is sizing: one bad trade wipes you out. A $167 loss on $950 is already -17%. You cannot compound from that drawdown path. First you need to stop chasing 0DTE: it is coin flip gamma. Professionals scalp that with algos, not $1k accounts. There are much easier way to make money, especially in that market. You also must think defined risk, your account size is too small, althought I would probably stop trading (and be long) and do whatever I can to increase my bankroll. And while I try to increase my bankroll I would learn to find repeatable edges. Example: selling vol when IV is high and RV is low, or buying cheap convexity when the skew is lopsided. In that market, you can also buy the dip (not in 0dte...) and let the market recover. The problem is it may end at some point and this can dent your profit. The other problem is .. it doesn't feel like trading. But it is and once again, you need to respect your bankroll. At $1k, you are not in the business of harvesting daily VRP. You are in the business of learning. If you survive a year without blowing up, you are ahead of 90% of new traders. Good luck.

sharpetwo

The VRP is pretty strong MSOS, just saying.

sharpetwo

Backtest put credit spreads by toggling dte or strike distance is only half the story. The big drivers are skew and the variance risk premium. If you sell puts when VRP is thin or skew is bid, you are basically underwriting crash insurance at the wrong price. Backtest may look fine in calm periods (like the one we now have had over the last 4 months), then one dislocation wipes out a year of credits. So yes, test your strike logic, but add these layers to any framework, for instance is IV meaningfully above RV (VRP)? Otherwise, you do not have an edge and more often than not it is a losing value proposition. Sam reflection with the skew? If puts are in demand, you are the cheap liquidity. You need to make sure there is clear excess demand. Finally the term structure is always a good filtering mechanism, and much easier to check than VRP and skew: if you are in contango, it's indeed easier to make money with put spread or just put in general. Without that, you are just selling exposure, not selling overpriced exposure. And that is the distinction between making a good looking strategy into a money machine. Good luck.

sharpetwo

The edge at 30 dte is fairly clean: IV trades about 6 points above RV. That said I do expect some movement short term. So I would stay away from anything 14dte or less. Take the Oct 24 contract, try to stay delta neutral, and harvest the VRP in there. Don't overstay your welcome: 2 weeks in the trade max, because then the hedging flow ahead of earnings may get the stock to wiggle quite a bit. Good luck.

sharpetwo

Deep ITM puts barely have any vega. At that point you are not “harvesting vol,” you are just long or short stock with extra steps. If you want to actually collect VRP, you need to be selling where there is demand for optionality so ATM or skewed wings. Rolling deep ITM puts forever is not a vol trade, it is just averaging down on stock exposure.

sharpetwo

The VRP is so strong in IBIT you can sell options and let the market do its own thing. Even a straddle would do. Harvesting money in options is easy when the conditions are perfect ie the last 3 months. But I'm sure we would have had a very different conversation from Dec 24 to Mar 25. But again what do I know? It's that simple right? Sell 45 dte, manage at 21 and go somewhere between 20 and 25 delta... why bothering understanding the math behind it?

sharpetwo

You’re basically running a long straddle financed by short weeklies which is the classic “theta harvest vs convexity” trade. It tends to work wonders in indices where you have high variance risk premium. There is so much VRP these days, that there is a legitimate question about either selling weekly straddle and being long straddle, or having a strangle also at the back. Your choices but you may want to look into this. That is also why you experience some "mismatch" when your front strangle is challenged: when this happen, you straddle behaves more like a stock and will lose value if things wiggle around but the move doesn't continue in the direction of your winning leg. The first immediate think you could do is recenter it: strike it at the money again. Keep in mind that for this to work the term structure matters. This works when the curve is in contango: front implied vol richer than realized but cheaper than back implied vol. You’re selling juiced weeklies and your hedged with something that decay slower in the back and benefit if you see a spike in vol. In backwardation it’s the opposite and you certainly want to avoid this position: the front is expensive for a reason (event risk, stress). Selling it just torches you. Good luck.

sharpetwo

32% a year with buy-and-hold is elite territory ! Well done! The real question is not “should I learn covered calls,” it is “can options give me edges that stocks alone cannot?” Options are not about structures for their own sake. A covered call, a spread, a straddle or whatever, those are just ways to monetize an edge. The real game is data-driven: understanding volatility, skew, term structure, realized vs implied. That is where the money is. Done right, options give you tools stocks never can: expressing views on volatility instead of direction, which to me seems a natural progression to how you currently manage your account. You have an edge on direction, you do not need to use options for that. Keep things clean and separate. This mean you would focus on harvesting VRP when the market systematically overpay for options contract. Think of it as going into the insurance business: you do not care where the market goes, you just want to know if the premium implied in the option will exceed the wiggles (up or down) in the stock. Then you can consider hedging exposures without dumping core positions (the covered calls stuff, colars etc.) But there is no free lunch: selling an option is always a bet on volatility despite what people want to say and you need to make sure odds are in your favor. And therefore the obvious: options come with a cost in terms complexity and time.But yes, it can be highly profitable. But only if you treat options as a probability and risk-pricing problem, not as “what strike should I sell.” Good luck.

sharpetwo

Good points on IVR being noisy because indeed one outlier and the rank is warped for a year. That is definitely a trap new traders fall into. But IVP is not a magic fix either. It is still just a rear-view mirror: “where have we been in the past 12 months?” It tells you nothing about the forward surface you are actually trading. The windshield is term structure, skew, and RV vs IV. That is where the real edge sits. Sticking to your CSCO example: 30 day IVP at 47% looks “mid,” but if you are trading 60 day options you care about that line, not the 30 day anchor. Often the best VRP harvests are when IVP looks low, because realized is even lower and the carry is fat. We have a perfect examples in US indices lately with VIX (low) at 15/16 but realized at 8/10 and selling options has been perfect for 4 months now. So IVR misleads, IVP cleans it up a bit, but both are static. If you are putting on trades, you want to be looking forward, not just percentile marks of the past.

sharpetwo

What you are describing is not a strategy, it is survival bias with a bankroll. You are basically selling lottery tickets until one blows up, except right now variance is bailing you out. The reason it *feels* like skill is because 0DTE has a fat VRP — the house edge is there, but only if you size and structure correctly. When you go yolo or revenge trade into the close, you flip that edge into pure path dependency. One gap, one Fed headline, and you torch months of “profitability.” If you actually want consistency, build rules around size (fixed % of account, no exceptions) and structure (iron condor vs verticals, no random “because it feels right” changes). Ant the obvious, 0dte are still a data problem; you need to understand what drives your profitability. And these are so turbo charged in gamma that the answer is more often than not in the recent behavior of realized volatility: quiet periods are often followed by crazy periods and vice versa. Finally, stop trading after X losses; revenge trades are where accounts die and despite surviving thus far, you won't be immune to that. Luck has carried you, but the market will eventually collect rent. If you do not formalize it now, the lesson will come in one very expensive afternoon. Good luck.

sharpetwo

Theta isn’t your problem, VRP is. The curve may look flat at the start, but you’re still paying too much for insurance relative to what the stock delivers. Unless your ticker rips now, you bleed through a combo of decay and IV crush. The house edge isn’t in the slope, it’s in the pricing.

sharpetwo

Going long vol is much harder, I would even argue it is an identity. It bleeds most days, then prays for a crash to make back a year’s losses. You are swapping one slow bleed for another, except this time you get fewer dopamine hits because your PnL is red 90% of the time. But I think you are looking at this the wrong way: there is no consistent steamroller. You are either harvesting VRP (short premium because you sold expensive implied versus realized vol) or paying the premium. And the higher the premium, the harder it is to make money. But both sides can make money, but only if you actually know when vol is mispriced. Without that, you are just spinning a wheel to see whether you get crushed today or tomorrow. If you want consistency, you should avoid thinking in mechanical heuristic: i got done badly selling options so instead I am going to buy. Instead you need to start looking at trading at a data, probability and odds game. Where is vol overpriced? Where is skew stupid? Where does term structure bend? That is where you build trades. Everything else is just a cosplay of casino roles. Good luck.

sharpetwo

You are almost there but still looking at this slightly the wrong way. 1/ Forget the Fed: being long the S&P is never a bad base case. Over time, it goes up. That is the whole game. 2/ Calls are not a magic shortcut to get long. They are insurance contracts. Insurance always comes with a premium. If you buy a call, you now need three things to line up: the market must go your way, fast enough, and far enough, before expiry. Miss any of those and the premium you paid bleeds away. 3/ Puts are the evil twin. Everyone loves them because they scream protection. But because everyone wants them, they trade rich. You are not stealing insurance here, you are overpaying for it. But you can ... sell them. That is why pros often flip the logic (on index or ETFs! Not on single stocks): they sell the expensive puts, and buy the cheaper calls. That way they are long the market (the natural drift), but they do it in a way where the option mispricing (once again the volatility risk premium) works in their favor, not against them. If you want to play with options, measure yourself against that VRP, not some random “IV rank” number you pulled from a screener. Good luck.

wyterk

It is not as simple as this. You don't buy and sell based on IV. You need to have an edge in terms of VRP, skew, term structure

sharpetwo

Buying options feels safer because your losses are capped, but the industry standard view is that long premium is a negative-EV business unless you have an actual edge in timing volatility. Which let's be frank, is extremely hard to do. Implied vol is usually overpriced relative to what the market delivers. And again, this makes a lot of sense - you have to be compensated for the risk of writing an insurance to someone (selling an option) and accepting that transfer of risk. That is the variance risk premium. So if you are just buying calls and puts “because risk is capped,” what you are really doing is paying insurance premiums over and over, and most of the time the storm never hits. Time decay is relentless and you bleed theta every day you are wrong or early. High IV names like SOXL look juicy, but that premium is rich for a reason: who in his right mind, will sell you a "cheap" option on these names, considering they can move a lot. And I insist on this: by cheap I mean, from a volatility perspective ie implied vs what is actually realized. Realized usually comes in lower, so you will lose more often than not. Ultimately, the problem with your approach is that being “right” on direction is not enough: you need to be right on magnitude and timing before expiry. That is why most pros sell options to capture the VRP and only go long premium tactically (event plays, skew mispricings, regime shifts). If you like the capped-risk style, think about structures that reduce the bleed: spreads instead of naked long calls/puts, calendars or diagonals to trade term structure, or even using long premium as a hedge funded by short premium elsewhere. Good luck.

Keizman55

Good job, 30% annualized. How did you get onto Vistra today? Did it pop up on a screener or was there solid news about it. Nice VRP, is that how you found it, with a volatility scanner?

sharpetwo

Every trader goes through this. Options aren’t hard because of the greeks, they’re hard because you’re fighting time and variance. First of all, option trading is a margin business. Most retail traders think they’re picking strategies, when really they’re selling or buying variance risk premium. That’s the spread between what the market charges for insurance (implied vol) and what actually happens (realized vol). The pros understand that selling VRP is like running an insurance shop: small premiums most days, the occasional nasty claim. If you don’t size for that variance, you blow up. So don’t ask what strategy should I use? Ask do I understand what’s driving my P&L? What is it that I sold to cheaply (from a volatility perspective) and bought to expensive? Oh and obviously, the sooner you stop using options for directional bet, the better. Because the edge is not there. Once again, it is in implied vs realized volatility. Losing early doesn’t mean you’re doing it all wrong. It means you’re paying tuition. Just make sure the tuition is small enough that you can keep playing the game. Good luck.

sharpetwo

The wheel on an index is a very different animal than the wheel on single names, and a much simpler to deal with at the first place. With SPY or QQQ, you do not carry idiosyncratic risk, and history has a strong bias: indexes go up. That alone makes it a better long-run play than wheeling Tesla, AMD, or whatever happens to be volatile this week. The real pain is almost always on the call side. Even when VRP looks attractive, it is usually driven by puts. That means you are getting paid well to take downside risk, but your call premium is skinny, and that is exactly where you get punished when the market rips higher. Two ways to manage it: 1/ Sell fewer calls than puts and overall give yourself breathing room on the upside. 2/ Or, if you must sell calls, consider financing them by buying further OTM calls. You cap your upside less brutally, and you avoid being short into a runaway tape. At the end of the day, indexes grind higher. Structuring your wheel so the call side does not choke your equity curve is the real edge. Good luck.

sharpetwo

This is the classic covered call trap: it feels like income until the underlying rips, and suddenly you are short a ton of upside. Rolling here is basically paying rent to stay in the house you already own. You are buying back a deeply ITM call (expensive) and re-selling further out and often cheaper than you wish. Therefore you end up lock in the loss on the short call and hope the new one earns it back. You are basically short the stock, while owning it or trying to get out of the contract you knowingly sign with the market. Fine. That can work, but in your case XLK is $40 above strike, you are not rolling, you are digging. Your choices are really just three: 1/ Take assignment: you sell at 230, pocket your premium, and move on. Painful, but clean. 2/ Buy back the call: expensive, but it frees your shares. You then decide if you still want XLK exposure at $270. Who knows, it may get to 300+ by the end of the year and all of that will just be a bad dream, or an expensive lesson. 3/ Do nothing: accept you capped your gains lose your shares, and take the lesson. Rolling here is not fixing anything, it is just kicking the can at a worse price. Covered calls are best written when vol is fat and you are okay losing the shares. If you are not okay, then you should not be writing them. For what it is worth, XLK has been on a strong run, implied vol is not extreme, and the VRP has thinned. This was never the time to be selling calls hand over fist at the first place, particularly in short expiries. Good luck.

sharpetwo

If you’re looking at GME post-earnings, the vol surface pretty much tells the story: 1/ ATM calls/puts are still rich and you can do the classic covered call juice here if you’re long stock. Not riskless, but you’re getting paid well above realized. 2/ Short strangles look tempting. Yes the skew isn’t screaming in either direction compared to what it was over the last 3 months but VRP is elevated across the near tenors. You’re basically renting out your balance sheet to speculators at a nice premium. Just remember, this is GME the ultimate meme stock. Mean reversion is not your friend when tails kick in. Size it small, treat it like a trade, not a paycheck. That said, you should be able to do it week in week out as long as conditions do not drastically change. Professionals do trade GME by the way, under the following thesis: am I selling rich premium or am I handing out cheap protection? Based on the data lately, the edge looks more on the sell side. Good luck.

sharpetwo

# Everyone obsesses over DTE and strike like there is some magic formula. But there is none. The real game is whether the premium is actually rich. Institutions do not sell calls based on “cost basis.” They sell when the vol surface is paying them. For instance, on indices, calls are usually the cheap side of skew because every fund manager on earth is leaning short them for yield, while buying puts for hedging. That is why the pain on covered calls is always bigger than people expect. But that is not necessarily the case for meme stocks. You need to have the same mindset for tenor: weeklies bleed fast, but you are stuck babysitting gamma. Monthlies have a cleaner carry. Without all these insights, you are trading blind and that is what makes the difference between pro and retails. Pro do not backtest or trade on "mechanics" - they compute odds all the time and then put them in context of what is happening in the market right now. First thing you can do: check realized vs implied. If implied is not higher, you are just clipping coupons in a ghost town. Covered calls look “safe,” but if the VRP is thin you are warehousing risk for free and giving away convexity. If you really want to run the wheel, the smarter money is usually providing liquidity on the put side where funds are overpaying. On the call side, be picky. Only sell when you are getting overpaid, otherwise, you are better off keeping your upside. Good luck.

sharpetwo

The “call spread vs. outright call” framing is only half the story. Spreads look optimal because you cap your premium outlay — sure, convexity per unit capital is higher. But you are also capping exposure exactly where your thesis needs it most. If you are building a sleeve to express 6–12 month conviction, you are paying for the right to catch an outlier. Why capping yourself with a short leg that works against you the moment you are right in size? Because the end, if you really want optimal convexity per unit capital the math is simple: out-of-the-money calls. If you want realistic expression of your concentrated portfolio’s edge, the structure needs to fit the distribution of outcomes you believe in. Tenor matters too. Six months is not long-dated in vol terms: you still carry decay and skew. Twelve months+ is where the vol surface flattens, and you often get a cleaner VRP pickup. And finally, strike selection is not just delta, it is about what you believe: do you want to monetize grind-ups (30–40d calls), or do you want convexity to tails (10–20d)? The trap is thinking the spreadsheet answer (call spreads look better!) is the whole answer. Sometimes you want to own the ugly, overpriced optionality because you only need it to pay once. Good luck.

sharpetwo

That is a sound idea ! You are not exposed to idiosyncratic risk like normal stock. That said, most people who “wheel” SPY think they are running a rent-collection business. Sell puts until you get stock, then sell calls until it goes away. Clean and simple. But the reality is you are plugging yourself into the equity risk premium machine and that machine has quirks. On the put side, you are usually providing liquidity to fund managers who are perpetually long equities and pay up for downside protection. That is where the edge tends to live. The call side is trickier. Everyone and their mother already sells covered calls to juice yield. Supply is heavy, skew is flatter, and upside tends to surprise higher. In other words: short puts have historically paid you, short calls have not. The real trick is checking the volatility risk premium (VRP). This summer, SPY puts were handing you fat VRP. That is when the wheel looks good. Other times, like early this year or during tariff headlines, VRP was razor thin — and the wheel would have just been catching falling knives. So the smarter way to answer him is: – The put side of the wheel is usually your friend, if VRP is there. – The call side is more questionable; upside in SPY often runs harder than people expect. Overal, pnl will look great in quiet tapes, miserable in sudden gaps, so timing matters. But it's a sound idea. Good luck.

sharpetwo

LLMs are not edge detectors by themselves. They are not going to tell you whether SPX vol goes up or down next week and that is where the “hallucination” problem kicks in. Where they do shine is into turning raw features into trade frameworks (e.g. “this skew/VRP setup implies you want to do a calendar vs diagonal”). I find them particularly useful to bridging ML outputs into natural language so you can actually use the signal. Think of them less as forecasters and more as front-ends for your models. The heavy lifting is still done by your vol surfaces, regressions, or whatever statistical framework you run. The LLM makes it usable at scale. The mistake people make is asking them to predict. The real win is asking them to translate what your actual models say into human-readable setups and risk calls. That is the difference between science fiction and a desk tool. Good luck.

sharpetwo

Verticals on NDX work the same way mechanically as SPX/QQQ, the difference is in the underlying dynamics. NDX trades with fatter tails, more single-name concentration, and less broad equity risk premium cushion than SPX. That is why the credit spreads tend to pay a little more but also blow out harder when tech wobbles. The real question is not “can I keep running my 45-min breakout filter?” It is “does the structure itself still offer edge?” Right now, selling premium in NDX is still structurally better than doing it in SPX because vol is richer versus realized and because equity risk premium is carried heavier in tech. But you need a data-driven read on VRP and skew, not just intraday breakouts. So yes, paper trade the setup if you want but at some point you will want to step back and ask: is implied > realized, is skew clean, is the term structure favorable? That is the real story for whether verticals make sense in NDX, not whether the first 45 minutes of the session go your way.

sharpetwo

You are getting flamed because nobody wants to be told their adrenaline rush is just noise trading. But you are right. 0 dte is flow-driven, not edge-driven. The winners are brokers (fees) and market makers (bid/ask + skew). For retail, it is variance scalping while paying the house vig. With longer-dated options, at least you can structure risk: size in vol terms, lean into skew, capture VRP, roll, adjust. That is where consistency lives. A good day on 0 dte is often luck for retails. A good process in longer maturities can totally be edge. That difference is the whole game.

Euphoric_Tailor_9708

I asked ChatGPT to apply your logic to my current strategy this is what I got Lessons From sharpetwo 1. The “Good Stock List” Isn’t Static - There’s no magic list of tickers. - What works depends on your goals (safety vs. premiums). 2. Two Paths in the Wheel Strategy - Safety & Steady Premiums: • Use big, liquid ETFs (SPY, QQQ, IWM). • Pros: tight spreads, steady fills, less risk of random headlines blowing you up. • Cons: huge buying power required (not practical for smaller accounts). - Juicy Premiums (Higher Risk/Reward): • Semiconductors (NVDA, AMD, SOXL) or meme-adjacent stocks. • Pros: fat premiums. • Cons: gap risks; must accept being assigned 10% lower overnight. 3. What to Avoid - Thin names with wide spreads (hard to exit). - Low IV stocks (premiums too small). - Biotechs, penny stocks, earnings roulette (binary risk = wake up assigned garbage). 4. The Wheel = Short Volatility in Disguise - You’re selling volatility when you run the wheel. - Edge isn’t a magic ticker → it’s about finding where options are expensive (look at IV rank, VRP, vol surface). - Success = managing risk once you’re in the trade. ■■ How This Helps Us - Since you don’t have buying power for SPY/QQQ, we scale his idea down to $5–20 tickers with liquid options. - We split tickers into Steady (safer, smaller premiums) and Juicy (riskier, bigger premiums) categories. - The main principle we keep: • Stay in liquid names, manage risk, avoid traps. I feel like this help me Thanks

sharpetwo

ORCL is not a bad candidate, but you need to know what you are selling into. Right now the surface is lit up as one would expect ahead of earnings, with fat VRP in the near tenors (7–14d, Z-scores > +2). That means implied is way above what the stock has actually realized. In plain English: options are expensive, and you want to be a seller. Skew also shows that puts are cheaper than calls. The market is leaning one-sided into upside risk, leaving downside convexity underpriced. So yes, an iron condor makes sense in the sense that you are clipping inflated premium in a name but placement matters as you want to avoid the earnings risks: \- Go outside the std move implied by earnings. That would mean at least delta 30. \- Keep the wings balanced, but know the real juice is on the call side: that is where skew is richest. Finally size it like an earnings lottery ticket, not a paycheck. Good luck.

sharpetwo

The phrase “super safe put” is the trap. By definition those are the ones that blow up when the world shifts. Yes, you are selling on indexes rather than single names, so at least you are avoiding idiosyncratic blow-ups. But two things kill people here: 1/We are terrible at predicting tails. When vol gaps higher, deltas jump, liquidity vanishes, and your 95% OTM option is suddenly in play. IV behavior in tail events is a whole field of risk management and hand-waving probabilities will not save you. 2/ Sizing is the reason people blow up.. because it feels safe. The ironical destructive loop. People load up with margin. Then the one time it does not expire OTM, it wipes out months or years of income. The usual next conclusion is: well easy then. Do not size up. But then comes the question of capital efficiency. Even if you size carefully, the margin requirements are still chunky and on a risk-adjusted basis, it is not as efficient as it looks. For me, the bigger question is more if your method has worked the last six months, why rush to change it? At least spend some time asking why it has been working. The last three months especially have been a gift: VRP has been unusually fat in SPY, QQQ, and broad index ETFs. That will not always be the case. The real edge is not in finding “an illusion of safety,” it is in recognizing when setups like the one you just had appear again, and pressing them appropriately. Tails are not a shortcut to that; it is just leverage on the wrong problem. Good luck.

sharpetwo

An iron condor is not a “neutral chart” trade. It is a vol smile trade. You are short the middle, long the wings. So it only makes sense when both wings are overpriced relative to the body. In other words: skew + VRP have to be in your favor. That is why you see setups in places like GLD right now: wings bid up on crash fears, but realized is running tame. That makes the smile juicy enough to sell both sides. For cash-secured puts or vertical spreads, yes, chart context can help with timing since you are taking directional risk. But even there, the bigger driver is whether you are selling expensive vol or cheap vol. So the real order of operations you need to check if implied > realized (and if skew makes the wings even more expensive.) Then decide if you want a directional lean via puts/spreads, or stay neutral with a condor.

sharpetwo

Good luck ! Which one exactly the AAPL one? The VRP is indeed very negative at the moment.

thatstheharshtruth

That's not relevant. OP said CSP. If you're selling puts you're not harvesting VRP. You have large delta exposure and that is what mostly determines profitability. If you want to harvest VRP you have to do it in a delta neutral way. CSP ain't it...

sharpetwo

This is the classic 0dte trap: you are focusing on the money you “left on the table” instead of the risk you actually avoided. Morning premiums are expensive for a reason, they carry the juice of overnight gaps and the heaviest implied vol for the day. It is more often than not a sell because they exceed the realized vol. However, the VRP is really hard to extract so I wouldn't play that game too much here. Anyway, that is why you feel like you are overpaying. By afternoon, the lottery tickets are cheaper because most of the day’s uncertainty is gone. But the VRP is still there while gamma is through the roof - one move and your risk profile is totally different. Not a game for the feint of heart, and again, pros often play it very differently than retail - they often warehouse cheap gamma as an hedge in these very short expiries. Your brain is doing what every new 0dte trader’s brain does: replaying the hindsight chart and thinking “if I had just held…” That is the gambler’s loop. Professionals flip it around: “if I had held and it had gone the other way, how dead would I be?” That is the risk frame you need. So yes, scale down. Yes, pick your time window instead of chasing both. But more than anything, stop playing the “what if I held” game. That is the casino whispering in your ear. Last thing, because that was my main message really - why on earth play 0/1 dte? There are much easier place to be in the option game. Leave that for gamblers. Good luck.

sharpetwo

You are right to be suspicious. Comparing ATR to implied vol is like comparing a yardstick to a compass — different units, different purpose. Pros do not look at ATR at all by the way. They compare realized volatility (annualized properly from returns) to implied and that spread, called the variance risk premium, is the basis of many strategies or at least positioning. If you want to level up from “income strategy crash courses,” here are a few nice and practical addition to your bookshelf: * Sinclair’s *Volatility Trading:* the best bridge from retail heuristics to professional vol thinking. * Sinclair’s *Positional Option Trading:* even better for the system-builder mindset, where you stop asking “which spread?” and start asking “what edge does the market give me?” This one is particularly useful to start looking at trading like a business. * Taleb’s *Dynamic Hedging* dense, dated, but still the trader’s manual. Not for everyone and if you had only one take away: always buy some very OTM options, and usually far in time, because the market is notoriously bad at predicting tail scenarios. Start calculating realized vol yourself, line it up against the term structure of implieds, and you will see why the “ATR vs IV” framing is a dead end. Once you see the VRP, you cannot unsee it.

thrawness

I am little late to party, but have something to share that changed my approach on trading options fundemantally. It's Dispersion. The VRP argument to sell options an collect theta

sharpetwo

Thank you and glad I can be helpful. 1/ Yes it has to be on the same timeframe. 2/ The VRP in SPY turned negative on Mar 20 and despite being ever so slightly positive at the worst of the crisis (Apr 8-9) it was mostly at 0 and then negative for a long time, as IV got mercilessly crush and realized was still high. VRP is really positive (+5 on average) since early June, and indeed since then it's been fairly easy making money selling options again. Especially with a particularly forgiving realized vol and gentle path drifting on the way up. It's not always like this, and sometimes you have to delta hedge. 2b/ VRP is a measure of the past - yes and no. The best estimate of RV tomorrow, is often RV today. Therefore, VRP today is very often a great predictor of VRP tomorrow. There are other factors, but in my ML model, VRP today come (not surprisingly again) as one of the top feature. 3/ The key is still to put it in context and to capture moment where it is really stretched - knowing that it is positive or negative is already great. Knowing when it is really stretched compare to recent past is even better. 4/ I expose almost all of my research in my app. I know how painful that stuff is to recompute because.. well I've been trading for a while. Retail traders are at a massive disadvantage to pros because... well they don't have data but sometimes tech skills and even more often time. There are other tools in the market, do a quick google search and you will find the one that suits you best. 5/ Stop loss: never. I size small and I am not buying wings either. Again, it's like being an insurance provider. You can decide to reinsure yourself, but it eats your margin (especially with the volatility smile, you end up buying a vol that is often much higher than the one you sold). If you insist in hedging, you should consider calendar, they are probably the best of both world, but not a magic solution either: you are now expose to the term structure.

sharpetwo

Yes - most of the time, riskier stocks have a bigger VRP. But the VRP is often there for a reason. So you have to know when things are really out of place. Hence a zscore.

whyalwaysme-_

Been reading your posts lately and I have to say I learned a lot. Especially about the VRP, IV surface, etc. I do have some questions for you and hope to get some clarifications. To my understanding, what you recommend is that when IV > RV, it’s a good time to sell. It has to be the same frame, like if you’d want to sell 14 DTE options you need to compare RV in the last 14 days and 14 DTE IV ATM. Most of the time this should work. What did it look like in this March or April? At one point the VRP would turn from positive to negative, and to me RV is a measurement for the past and it may not indicate future movements. Another question, for us who don’t have our own tools to calculate the VRP, can we just use the IV/HV and sense the premium? Like when IV/HV is greater than 100%, you have a higher chance of winning by selling options. How does the volatility skew, different strike price affect the premium? Do we have to get the VRP for each delta (most common would be 0.2)? Is there an easier way (like tools/websites) to get it? One last question, when the position goes against you, do you set a stop loss or just let it ride? I feel like you must have some pretty strict rules for stop loss. Thanks.

Histole

So you're assuming that its not unlikely for TSLA to have VRP > 1 on average, so you have to go to another level of abstraction? Am I understanding?

sharpetwo

yes it is the same. At least, cards on your side. But you still need to put it in context. For instance - selling VRP (IV - RV) at 30 days at roughly 4 in SPY is not the same as selling 4 VRP in PLTR or TSLA. You have to always take into consideration the underlying you are working with.

sharpetwo

Even if it is backward looking it is already a great indicator to look at. Mainly because the best prediction of tomorrow's RV is today's RV. So you can often say, if there is VRP today, there should VRP tomorrow. Volatility's behavior is much "predictable" in this sense. I personally do some more advanced stuff where I predict if IV sold today will be above what we are likely to realize over the course of the life of the option. That is also what people would do on a trading floor. But still do not overlooked IV - RV. And if you can zscore it, you are already pretty advanced.

sharpetwo

The trap you are in is thinking there is a "rule" like 50% profit = close, or Thursday = reset. That was popularized by brokers and inherently there is some truth to that, but the management mechanics should be first and foremost driven by risk/reward analysis: 1. Risk of ruin vs premium left: when a strangle is 50–80% harvested, the remaining premium is pennies but the tail risk is still the same monster. That is why pros cut them early. You are not getting paid enough to hold through Thursday afternoon headline risk. 2. Surface conditions and therefore, is there still some edge? Sometimes the week starts rich, sometimes thin. If front-end IV is elevated relative to realized, you can afford to reload after closing. If not, better to sit out a cycle than force a roll. "Always be in" is how people blow up. On rolling the call after 80% profit: that is not risk management, that is just selling more gamma in the same expiration. You feel busy (once again, isn't it waht Tasty say all the time - be busy, be nimble? Well guess who pockets the commissions?) but you are not really improving the position... you are just doubling down on theta/gamma imbalance. If you want to re-sell, do it as a new trade with fresh margin and fresh risk checks, not as an auto-roll. As for the calendar cycle (Mon–Fri vs Thu–Thu): it does not matter. The pie is the same. What matters is whether you are collecting VRP when it is mispriced, and whether you exit before the odds flip against you. Avoid thinking in terms of “how do I maximize collected premium?” and start thinking in terms of “am I still being paid enough for the risk?” Once the answer turns into "no," the position should be flat - whether that is at 50% profit on Tuesday or 80% on Thursday.

sharpetwo

Those are good hygiene rules but notice they are all about not blowing up, not about extracting edge. Trading small, sizing by VIX, avoiding prediction… those keep you alive. Survival is step one, but it is not the game. The real principles that matter for success in options: 1/ Know your carry: If you are short vol, understand the VRP you are actually harvesting and how it behaves across tenors. Selling “because VIX is high” is sloppy — sometimes VIX is high because realized is higher. The spread is the trade, not the level. 2/ The term structure is king and I wish more people would take time to study it and understand its mechanics. Steep contango vs flat/backwardation tells you when shorting premium is free money versus when you are catching a grenade. 3/ Skew matters but as a retail, a little less than the two listed above. If you master the two above then, index skew, single-name skew, vol-of-vol: if you are not watching them, you are missing some important bits and pieces and often when some very interesting edge hides. 4/ Hedge mechanics: this one is obvious but how do you survive the tails? Small size alone is not a hedge. You need convexity somewhere in the book, even if it is just 2–3% bleed into crash puts or VIX. 5/ Execution discipline: Yes, slippage and tax treatment matter, but so does working orders like a pro. Fill quality is an edge over time, this means spending time fighting with a MM in the order book to get the price you want. So your list is the table stakes. The actual game is knowing when the distribution shifts, and structuring trades that monetize that shift without getting carried out.

TheGreedyPickle

"Selling vol exposes you to the same tail risk regardless of what delta you sell, generally speaking. Best to collect more VRP along the way with a higher delta IMO." Can elaborate on that last part please? Selling vol you mean selling csp during high vol environment? Why does it not matter what delta to sell? Sorry if the uestion is stupid. I wanna learn more 

sharpetwo

This is the classic “short OTM puts every week = free money” pitch. It sounds like a paycheck (look Mommy I generate income! Im a vol trader!) and as long as NVDA drops less than 10% of the time, you collect $3k a week, retire happy. In reality, you’re just underwriting crash insurance on one of the most volatile, crowded, single names in the world. You need to focus on the weeks it doesn’t work to get a reality check. When NVDA gaps 10–15% on earnings or a bad guide, you’re suddenly long say $5M worth of stock against your will. This is why pros don’t size naked short puts that way in a single name. They diversify across tickers, tenors, and strikes, and they always respect the volatility risk premium (VRP): yes, options usually overprice realized vol, but you only collect that premium if you can survive the tails. A one-name, one-week, all-in short put book has zero tail hedge and its frankly a recipe for disaster. If you really insist on doing this, do it on a basket of stocks where your tail hedge is a bit more embedded - think SPY, QQQ. The risks outlined above won't magically disappear, but at least you have baked in diversification in your product and your strategy now resembles a buy-the-dip on something that overtime, goes up and to the right. That is not always the case for individual stocks and to build some intuition around it, rethink your entire post but instead of putting NVDA, put TSLA and imagine you wrote it exactly a year ago... Good luck.

duqduqgo

Will work until such a time when you can’t roll for a credit. Selling just a week out on a stock with this volatility you will find yourself stuck before long and owning a lot of NVDA for which you paid too much. Selling further out gives you more room to manage the trade when it approaches your strike because less gamma (option price changes more slowly), more time for a vol spike to flatten. Selling vol exposes you to the same tail risk regardless of what delta you sell, generally speaking. Best to collect more VRP along the way with a higher delta IMO.

flynrider58

The market is right most of the time which is why one needs an “edge” to be profitable. IMO, nothing you suggested (e.g. P/C ratio, volume, OI,s diversity etc…) are an edge. I believe VRP (e.g. IV prediction end use) is the only edge for option trading though much of what you suggest are ancillary usefull.

sharpetwo

You’re not kidding yourself and congrats for finding out about the wheel’s dirty little secret: the trade looks great when you’re selling CSPs or slightly OTM calls, but once your CC goes deep ITM, you’ve basically morphed into a stockholder who’s leasing away upside for pennies. That’s why it feels like “even Steven.” Right now you’ve got two paths, and it comes down to how you want to play expectancy: – Keep rolling: sure, you’re still pulling in yield, and you’ve got a fat buffer under you. But the juice shrinks the deeper ITM you get. Eventually the call is just synthetic stock plus a loan you’re writing for not much premium. That’s a lot of effort for very little edge. – Take the assignment and reset: this is often the cleaner play. You lock in all those gains, free yourself from the grind of trying to roll thin premiums, and redeploy into fresh cycles where VRP actually pays you. Rolling isn’t wrong, but don’t confuse “grinding 8% annualized” with “beating the market.” You’re basically long XLK, capped, and being drip-fed yield. Nothing wrong with that in a Roth if income was the whole plan. But if the point was to juice returns, then freeing capital and starting again probably gives you more bang for the buck. The real question isn’t whether you “lose” by letting it assign, it’s whether the capital tied up in that ITM cc could be working harder elsewhere, or the timeless opportunity cost dilemma. Good luck.

sharpetwo

Because the market doesn't owe you anything. You will have periods making tons of money because everything aligns, and then periods were things simply won't work. 2025 is a prime example - almost 0 VRP and more often than not negative VRP for most of Q1. It actually paid to be long options. Then the big firework of April. And since early June, the VRP is back in full force in SPY and selling options will make you feel like a genius, especially in short dtes. It won't stay like this forever.

FrangosV

Have you built your own tools to monitor VRP and skewness or are you using some online source ?

sharpetwo

I systematically try harvesting VRP and skew. Most of the time that shows up as calendars/diagonals, so think long cheap vol where the market underprices it, short richer vol where it’s bid up. That keeps me close to vega-neutral while monetizing term structure or skew dislocations. I’ll lean into short straddles/strangles when the surface is clearly overpriced relative to realized, but only with sizing and hedging that makes the tail survivable. And I’ll sometimes take the other side (long convexity) if the surface is asleep while realized is waking up. Finally I am almost all the time in some sort of risk reversal in equity index to monetize the eauity risk premium (index stocks go up). So yeah, I don’t think of it as “favorite trade” so much as “framework”: find where the vol surface is wrong (rich VRP, steep skew, weird curvature), and structure around that with something that neutralizes delta/vega so the P&L comes from the mispricing, not the tape.

sharpetwo

That POP number on your broker isn’t magic. It’s just a model (usually Black–Scholes with current IV) telling you what the market thinks the odds are under its assumed distribution. Everyone sees the same number, so you don’t get edge just by trading things with high POP. What matters is expectancy or not just how often you win, but how much you make on winners vs how much you lose on losers. You can have a 75% POP trade with negative expectancy if the 25% losers nuke you, and you can have a 30% POP trade with positive expectancy if the winners pay fatly. Pros care about skewing expectancy positive, not chasing high POP. That’s where the vol surface comes in. The only way to tilt expectancy in options is to sell insurance when it’s overpriced (VRP), fade skew when downside protection is bid too high, or buy optionality when the market is underpricing it. In other words: find where implied odds are systematically biased relative to realized outcomes. That’s the business. So yes, there’s merit, but not in treating POP as gospel. POP is the market’s prior now your job is to identify when that prior is wrong, and trade in a way that makes the expectancy positive. Without that, you’re just selling insurance at actuarially fair prices and hoping not to be the one holding the bag on storm day.

sharpetwo

On paper it looks like “QQQ has to drop 3%+ in a day, that never happens, free money.” In practice you’re shorting pure gamma and selling crash insurance. That 560 put is priced the way it is because once in a while the index does puke 3–5% in a session, and when it does you don’t just lose the premium: you’re suddenly long a ton of deltas into a falling market. That’s the trade: a few pennies for max problem in a problematic situation. Pros don’t usually think “I’ll sell this one naked put.” They’re either running it as part of a systematic VRP book across strikes/tenors/tickers, or they’re offsetting one tail with another: think short where skew is bid, long where it’s cheap, because anyway, when shit hits the fan, correlation goes to 1 and everything goes south. Sometimes they’ll structure defined-risk spreads for margin or tactical trades, but the real way they cap tails is through diversification and balancing exposures, not a single 560/550 vertical. That said, as a retail trader, nothing wrong with that: I was just laying that out there to maybe sparkle other ideas inspired by the pros. So “reasonable”? Only if you treat it like insurance underwriting: it works most days, and sometimes the storm comes. The real edge is understanding when there is a storm, when there will be a storm or when the cloud look menacing but will pass. You often won't see that in charts, but in deeper statistical analysis and regime analysis in particular. Retail can use spreads to avoid a wipeout, but if you want to actually do it like pros, you need to think in terms of running a portfolio of short vol exposures and offsetting tails, not just leaning on one 0DTE put and hoping today isn’t the outlier.

sharpetwo

You basically just discovered what every PM learns the hard way: risk engines don’t make money, they keep you alive. None of those things you built (VaR, CVaR, PCA stress tests) were ever meant to tell you what stock to buy. They’re brakes, not accelerators. They’re there to stop you from doing something dumb like loading into one correlated bet, ignoring factor exposure, or blowing up on a liquidity crunch. That’s why big funds have risk managers sitting across from PMs, not to pick trades, but to make sure the PM doesn’t get carried out. Where quants add value is on two ends of the spectrum: * Alpha side: actually modeling inefficiencies (VRP, skew, flow-driven anomalies, microstructure). That’s hard, edge-decay is fast, and it requires a research process that’s miles away from “risk reporting.” * Risk/portfolio side: making sure the alpha that does exist isn’t wiped out by unintended exposures. That means position sizing, correlation shocks, scenario analysis, and capital efficiency. So yes, if you expected your risk engine to spit out money making trades, you set yourself up to be disappointed. It’s not useless, but it’s a defensive tool. Making money is about edge or having a model of why something is mispriced, and a way to monetize it. Risk engines won’t give you that. They’ll just help you keep the lights on once you find it.

sharpetwo

People do make a living selling options, but the ones who survive aren’t just “writing covered calls and cash-secured puts.” They’re effectively running an options desk: doing the math, modeling realized vs implied, monetizing VRP, skew, term structure. They know when vol is overpriced, when downside protection is rich, when the curve is distorted. That’s the edge. Most retail traders don’t have that. They sell premium blind, hope theta pays them, and inevitably get run over when the regime shifts. Trading is already ruthless if you do have the tools; going in without them is basically volunteering to donate to people who do. That’s why almost everyone who really lives off this has either a proper quant framework, institutional-grade risk tools, or at the very least diversified systematic rules. And even then, it’s best to have income elsewhere. Building a money machine that prints across cycles (low vol, high vol, crashes, melt-ups) is not trivial for pros, let alone for retails... If you think you’re going to do it with a handful of “income trades” off a broker app, you’re already beat.

sharpetwo

0DTE implied vol is often way higher than what the index actually realizes intraday and with such a strategy you are trying to harvest that fat VRP. On paper it looks great: keep laying down straddles as SPX walks up and down, you kind of morph into a strangle book and it even feels like you’re delta hedging yourself along the way. But here’s the tiny little problem: it’s path dependent as hell. The moment the index trends instead of mean-reverting, you’re suddenly leaning way too short or long, and you don’t have the balance you thought you did. Gamma flips on you, and your “income strategy” turns into being massively short convexity against the move. That’s why it blows up accounts. Stops on single legs are useless, stops on the straddle as a unit aren’t much better. The only real stop is at the strategy level: how much drawdown are you willing to tolerate when path dependency kicks you in the teeth. That’s why pros don’t run it naked: they define risk (spreads, flies, calendars) or hedge actively. Without that, you’re just selling insurance and hoping the storm doesn’t hit today.

onefactormodel

See my first comment - of course the implied vol level matters because that is the price you pay. My only point is that your tracking-error to VRP pnl is quite large. It’s empirically the case that an unhedged ATM option has 90% variance contribution from the delta piece. If you’re not hedging a call, you have far more chips in the delta bet than you do on the VRP bet.

sharpetwo

You don’t fix 0DTE pain with a magic SL % on the contracts. The reason you feel like you “need” one is structural: 1. Vega is tiny but not zero. Every 0DTE contract still embeds an implied vol. If you don’t know whether you’re paying too much (IV > realized intraday) or getting it cheap, you’re basically just spinning the wheel. The edge in options is understanding when you’re long/short fair vol, not where to slap a stop. 2. Gamma is off the charts. That’s the whole point of 0DTE where you are renting insane convexity for a few hours. It whips 50–200% on tiny spot moves, which makes any “–50% contract stop” meaningless. If you hate that feeling, the fix isn’t a better stop-loss, it’s trading 1–5 DTE where the gamma/vega profile is saner and the VRP is usually juicier. 3. If you insist on stops… tie them to the underlying or to your account, not the option price. For example: “if SPX moves 0.5% against my strikes, I’m out” or “this trade will never cost me more than 1% of my account.” That way your stop matches the risk you’re actually running, not some arbitrary % of premium. Bottom line: 0DTE is like trading raw gamma concentrate. If you don’t size it properly and know where vol is mispriced, you’ll keep having the “one bad day wipes my week” problem, no matter what stop you pick. Good luck

sharpetwo

Let's admit that is true - how do you then explain that selling a 5 dte 0.15 delta pays more than an 0.40 delta at 40 dte? I guess we can agree on the fact that the implied vol embedded in the 0.15 dte (hold to expiration by the way) grossly overestimate the terminal distribution of the stock path. So if you were to monte carlo this, you would end up saying that IV in the market is far superior .... than vol realized? Of course if you are extremely precise you will say that VRP is just the monetization of implied versus realized, you need to delta hedge etc etc. But what do you call a short options trade profitable, with 0 delta hedging? Isn't it the pure expression of IV so much bigger than RV than stock path doesn't even bother you? At least that is how I view it. If you have another view of it, I'm happy to hear and potentially learn from it.

onefactormodel

Frankly the comparison the VRP is unwarranted for a buy-and-hold portfolio. Monetizarion of VRP requires active delta-management. For buy and hold all that matters is final payoff

onefactormodel

The dynamic equity piece contributes far more in risk/vol space than the VRP piece, almost rendering the VRP piece irrelevant. Just because x = y + z you can’t claim oh yeah y is driving returns too, if var(z) >>> var(y). Your tracking error to VRP is massive in a covered call

thatstheharshtruth

There is edge in harvesting VRP. (There is no edge in chart reading LMAO, no offense.? But the drawdowns will be brutal and the tail risk makes this not viable for reasonable individuals.