VRP

aesom_e

Wouldn’t that hedge spread take away from the potential returns of that strategy (and potentially pull EV negative)? If I’m not mistaken, you’re suggesting going short vol (which is a fair bet), but I thought the theoretical reason that pays is due to the VRP which you’d be paying for with your further out hedge. It seems like doing that would either be unprofitable, or you’d have a certain gap in prices which would completely annihilate you were the underlying to expire there - similar to betting the middle third and then every number but 12 and 25.

esInvests

whats up brotha - if you ever need anything man hit me up, happy to help however i can. technical indicators are mapped to profit mechanisms, its not technical indicators for the sake of them. the important part here is defining the profit mechanism THEN figuring out what kind of signals help you measure and capture it. for example: \- momentum: moving averages, volume profile, Absolute returns, Residual returns, (ranking and sorting via cross sectional (this just means ranking across tickers) and relative (ranking against itself), catalyst measurement, etc. \- vrp: implied and realized vol from various periods, VRP (variance risk premia, the gap between implied and realized) measurements, seasonality, percentiles (seeing how extreme things are), etc. How far out, and how many strikes away from the current price are you buying or selling? \> you might've guessed it, but it entirely depends on the strategy. options are known as "strategic investments" this simply means you can use them to build very specific things. what this means is there is not really a set: pick these kinda thing. it depends entirely on what your hypothesis and thesis are. based on those, we go into the options markets to build something that allows us to optimally express that idea. example, i was recently trading the relationship between SOXX and USO - for this trade, i actually used a synthetic short and long respectively because i actually wanted to REMOVE most of the greeks from the idea to better isolate the pair relationship. If you’re using the Greeks, what are the best indicators for buying/selling? \> doesnt exist. same as above. that said, greeks are mandatory to deeply understand, they help you with everything. just as with your rifle, you needed to learn it inside and out, it was your instrument. options are the instrument here. same knowledge is required. As a general background, I’ve been doing 0DTE or less than a week because I don’t usually have the money for options if they’re long-dated. I know it’s gambling at that level. But I’ve been using an I dictator called “sniper entry/exit” with 3 standard deviations, and a stochastic to show momentum. But these are slow to show a reliable entry/exit. \> i cannot emphasize how much i encourage you to not do this. the probability of you doing anything productive like this is so low its not even funny and even if you do happen to make money, the overwhelming probability is you'll just give it back. pls reconsider. youd be SO much better off aggressively saving your money, DCA into some tickers you like and papertrade to learn. just like before you ever sent rounds down range, you spent tons of time training, learning, practicing. same thing here. dude, i want this to work for you so bad. keep me in the loop and reach out whenever you need anything.

esInvests

best advise is to measure the effects you're trying to play. in general, there are (4) that i do - but theyre not something you can blindly do, you need to profile the things you're trading. 1. long vol into ER starting \~2weeks out, planning to gamma scalp 2. short vol through ER playing VRP 3. immediate price reaction to ER 4. post earnings announcement drift for many of these, you can actually find some helpful research on SSRN to get started.

esInvests

It was an awesome time! We did some live analysis then I walked through some SPX VRP research from 2007 to present. Identified where it tends to run rich, hope to research structures to capture it, etc.

SocraticGoats

No one? I've been making a full time living on almost entirely 0DTE for years. Its incredibly hard, but you can harvest VRP if you are disciplined and know what you are doing.

sprezzatard

No option is setup to pay out, due to VRP, because no seller will purposely sell a winning ticket The only way a long option can win is if realized volatility > IV You only want to use options if you need and want leverage So, the correct answer on strike selection is how much leverage you want to use. Generally, the more confident you are on your thesis, the less leverage you should use

shortvol_trader

You’re basically running a levered short vol book disguised as “stock picking.” The issue isn’t monthly P/L, it’s regime dependency Naked puts + negligible cash works great in benign vol / mean reversion because you’re harvesting VRP and getting paid for gap risk. The problem is prolonged correlation spikes + vol-of-vol expansion where margin requirements reprice faster than your ability to adjust If you’ve survived tariff shocks and geopolitics without damage, odds are you’ve mostly traded in a favorable path-dependent environment. A grinding bear with elevated IV and failed rebounds is usually where this breaks, not the one-day panic Instead of adding random strategies, I’d think in terms of portfolio Greeks and regime diversification: – Put ratio/backspreads or cheap tail convexity for left-tail events – SPX/XSP defined-risk structures to cap margin expansion – Calendar/diagonal exposure when IV term structure gets dislocated – More index short vol, less single-name gap risk The question isn’t “what makes more income?” It’s “what survives when realized vol stays above implied longer than expected?”

Fit_Equal6932

Not highlighted here but I am assuming you went with holding on to expiration, so no long legs? If so then the concern expressed above is not valid since stops won't matter in that scenario. While substantially different from the real trading mechanics this will give you a good estimate of whether any real edge exists in selling VRP (and it should because MMs need to make money). My question was whether crossing the spread will kill any of this edge making this a highly technical strategy that won't work for anyone just getting filled with adverse selection at mid or by crossing the spread.

toomyzoom

I don't calculate vol crush because it's kind of impossible to predict the fuckery in first 15 min at open like you noted. Price maybe in range overnight but drop like a rock/shoot up like rocket at open or vice versa. I saw some wild stuff happened, like price stand still ATM on Costco in last Q3 or 2SD move down in Nike at open. There is no way to predict that. Like a lot of people here criticize you or in the ADBE thread (not sure where I see which one), if you just sell every earning, statistically implied move is overpriced but in long term, you will be in negative (IV not crushed as much as needed, slippage, fee, etc). You have to make your win amount and chance a little bit better to offset those overhead. I use a few thing to stack my odd against the inevitable coin flip: - VRP must be positive. Otherwise, you're not compensated enough for the risk. - IV have to be in backwardation, preferable steep IV term structure vs IV term structure without the earning. You need historical data for this to deduce the IV without earning. - Options volume has to be over 10k or you will have problem closing your spread at open at favorable price. So I use 3 moves: Implied move, average move, and average implied move. The last 2 will need historical data. Average implied move has to be bigger than average move. Implied move can be equal to average implied move but I prefer it be higher to make it worthwhile. That's how I decide it's expensive or not to short or long. I don't usually long because you have to be right about the direction, magnitude of the the move and hope it's there overnight or magically happen at open. Also those moves are correlated to quarters instead of annual average of all earning.

GammaReaper_

I use a variety of metrics - IV rank, VRP, historical mean opening gap, std deviation of gaps, IV vs crushed IV, etc, etc. It's an educated guess at best, but with 65% of earning IV overpriced and playing both long and short and winning 54% of the time, for the time being anyways my approach seems to be generating alpha. But then again it could just be luck. Who really knows?

Minimum_Diamond6700

I plugged Claude to flashalpha . It’s pretty good. Screener , VRP , GEX it’s all there https://flashalpha.com/docs/mcp

esInvests

much love! i plays earnings all the time - it's actually one of the best market effects i attack. there are several phases: 1. IV expansion into the ER > here i look to play long vol - it often doesn't make much but it doesn't lose much either. every once in a while there will be strong moves that help the overall strategy. 2. IV contraction through the ER > this is a basic VRP effect, i target these all the time. 3. Immediate price response post ER (intra day). > i only target these in extremes. 4. Post earnings announcement drift > another staple, well documented. i essentially have a strategy outline for each that i run. for 1. i start looking \~2 weeks before ER. for 2. right near the close before the ER. 3. near the open after ER. 4. day or two after ER for the next several days to weeks.

NoteLegitimate4844

That's a good reminder. A lot of premium sellers talk about VRP as if it's a guaranteed edge, when it's really more like a *small statistical tailwind* that can disappear for long stretches. The part that matters most isn't that VRP is positive 68% of the time. It's that the negative periods tend to be clustered and violent. You can collect small premiums for months and then give back a huge chunk during a volatility expansion if risk isn't managed properly. That's why I've always thought position sizing matters more than entry mechanics. The edge from selling premium is often measured in basis points, while the losses from being oversized can be measured in percentages of the account. VRP is real, but it's not a license to sell every day in every regime. The traders who survive seem to be the ones who recognize when they're harvesting a risk premium versus when they're simply underwriting market insurance at a bad price.

Lost_Return7298

This is a classic debate in the options community, and honestly, the VRP (Volatility Risk Premium) data is such a rabbit hole. I’ve spent way too long pouring over historical data trying to find that perfect edge, only to realize that the market regimes have shifted so much since 2007 that what worked back then doesn't always translate cleanly to today. Real talk, if you're trying to build a system around VRP, you really need to be accounting for how liquidity and institutional flows have changed, because the premium you're capturing now isn't the same as it was fifteen years ago.

ThetaEdgeHQ

The 0.98pt average hides the part that actually bites you. VRP isnt evenly distributed across time, it clusters. The negative days dont arrive randomly, they bunch up in vol expansion regimes, which is exactly when your existing short premium is also marking against you. So the 32% of days with no premium and the worst drawdown days tend to be the same days, not independent draws. That correlation is the real reason blind perpetual selling lags the headline VRP number. The fix isnt to stop selling, its to size by regime so youre not adding exposure into the part of the distribution where premium and mark to market both go the wrong way at once.

esInvests

Not really true - there have been many periods post 2020 with negative VRP. Consistently profitable in terms of cumulative PnL, sure - could be, depends entirely on the strategy. Yep, I’ve researched this stuff in pretty much every cut possible. The shorter term windows exhibit a more volatility profile in general but similar broad trends.

Routine_Willow5311

Nice work on the VRP analysis. SPX implied vs realized vol spread has been consistently profitable since the 2020 shift. Have you broken this down by DTE bucket? The 0-3 vs 30-45 spread profile tells very different stories in my backtests.

esInvests

Naked is for institutions? What? Absolutely not lol. Second you absolutely don’t need to be naked to gain exposure to VRP - you simply diminish your total exposure, doesn’t eliminate it. I’m not arguing for spreads, I actually generally argue against them. That said, making it clear the statement itself is exactly .

gaana15

Thanks for sharing. 1. Why 30 days versus 21 ? 2. On day 1, 30 days iv comes from options prices and RV comes from actual of day 1- day 30 vol. Are you sure you calculated right ? And did not measured rv of day -21 to day 0 ? 3. Also how did you measure the realised volatility? Did it use close-to-close, Parkinson, Yang-Zhang, or some other way? That completely changes the picture of VRP.

GammaReaper_

In no particular order: IV of nearest 2 expiration dates. From that I calc expected vol crush Historical abs value of past 12 EA moves - both opening gap and 1 day move Std dev of EA moves Establish 68% CI of moves, then adjust for vol crush Determine current expected move, calc from nearest expiry ATM straddle VRP VRP percentile 25 delta risk reversal 25 delta risk reversal percentile HV vs IV - for previous EA, not all days Then depending on cheap/rich score from the above, construct an asymmetrical, non-directional, defined risk option position with the closest to expiration. If it doesn't provide an acceptable RR, pass. If all good, pull trigger going into close On open next day, allow price discovery to occur 930 -945. Exit trade regardless of outcome. Move on to the next one.

shortvol_trader

The mod's answer is correct but there's a cleaner way to think about it. Theta and IV aren't the price of leverage — they're the price of optionality. When you buy a call you're paying for the right to participate in unlimited upside with capped downside. That asymmetry has a cost. Theta is what you pay per day to keep that asymmetry alive. IV is how expensive that asymmetry is at any given moment. Sellers favor options because the volatility risk premium means IV historically exceeds realized vol 70-80% of the time. You're not just on the other side of a coin flip — you're collecting a structural premium that exists because buyers consistently overpay for protection and upside exposure. The structure without theta or IV exposure is exactly what the mod said — owning shares. Pure delta, no optionality cost. The trade-off is you have full downside exposure with no leverage. Options are a zero-sum game at expiration but not in expectation — the VRP tilts it toward sellers systematically over time.

venu_18

This is honestly one of the few VRP posts that *doesn’t* feel like fantasy math. The biggest takeaway to me is how execution/friction completely destroyed the “high win rate” illusion: * realistic fills * spread crossing * low fill rates * asymmetrical payoff That’s the stuff most option backtests quietly ignore. Also the point about “risk\_on underperforming neutral” is super interesting because it suggests the classifier may just be amplifying exposure exactly when vol is underpriced.

papakong88

What is VRP?

Altruistic-Pin3207

Solid setup reasoning on the VRP and IV cheapness. Worth a quick check on the broader portfolio side: if you're already in AAPL, AMD, GOOGL, or AVGO alongside this NVDA IC, [strikerate.ca](http://strikerate.ca) just shipped a geographic concentration map that plots all your open positions by company HQ. AAPL/NVDA/GOOGL/AMD are all within a 15-mile radius in Santa Clara — a semiconductor export control, Bay Area earthquake, or earnings contagion hits the cluster as one risk event, not isolated tickers. Not a reason to sit out, just context for how much actual delta is concentrated in one metro when you enter.

esInvests

I started in 07 and as of last year maintained just over a 30% CAGR. It’s unequivocally worth it if you’re able to make it all fit. Theres a healthy dose of luck and that strange thing of “if you do what you like it doesn’t feel like work”. For whatever reason, I really like trading. I think I identified early this was something that could offer great rewards so I learned to love it and have stuck with it for almost 20 years. I’m 35 now and am fortunate enough to live a completely different life than most of my peers. 2020 was an interesting year but nothing too special. The total drop wasn’t that severe it was more the speed. My biggest memory was being upset that I didn’t get to fully scale into my positions because I was following my standard bear market playbook where they can last on average 298 days. 2020 and 2021 from a meme stock lens my primary play here was GME. I trade a lot of different profit mechanisms and had an alert pop for a weird volume block that kept pinging. I followed the flow to later find out it was roaring kitty and just ahead of the squeeze. Insanely fun. Rode to the upside got stopped then played the collapse and subsequent vol. 2022 was nothing that registered other than the market was soft. Simply leaned into non long market beta profit mechanisms: momentum, reversals, VRP, earnings plays, etc. 2025 also nothing really notable either, business as usual. For those that choose to embrace trading as what it is - hard work that like other careers can pay off if done well, it’s a great place to be.

HelloEarthSpaceWorld

Yup there’s still risk like all investments but I prioritize safety-first before maximizing returns. I’m trading with no margin, no leverage, no naked options, backtested my strategies since 2012, and take into account a bunch of other factors like RSI, VRP, delta, earnings, and much more.

shortvol_trader

Best approaches institutions use: Skew-adjusted probability — use put IV at your strike instead of ATM IV to back out implied probability. More accurate than delta. Historical breach rate — backtest how often SPX has closed below your strike at expiration over the last 10-15 years. Real data beats model assumptions. VRP z-score filter — only sell when IV is statistically elevated vs realized vol. When z > 1.0 you have more cushion built into the premium. The honest answer: no model gives you the true probability. You're always estimating. That's why sizing conservatively and running hundreds of trades matters more than getting the exact probability right on any single trade.

ThetaEdgeHQ

The math is right but the input is wrong. Delta is risk neutral probability, not real world probability of ITM, and on OTM puts the divergence goes in your favor on the right underlying. The variance risk premium (VRP) is the empirical observation that implied volatility on equity index options has been persistently above realized vol since the 1990s. On SPX the long run average is implied roughly 17 percent and realized roughly 13 to 14 percent. That gap translates to delta overstating real world ITM probability on OTM puts by something like 30 to 50 percent. So a 10 delta put has roughly a 6 to 7 percent real world probability of expiring ITM, not 10. That flips your EV calc positive on an SPX style underlying. The problem with your specific position is the underlying. TQQQ is 3x leveraged QQQ, and the daily rebalancing structure means realized vol often runs hot relative to implied because path dependent moves get magnified. Empirically the VRP on 3x leveraged ETFs is much smaller and sometimes negative. So on TQQQ specifically, delta as a proxy for ITM probability is probably closer to accurate, and your math saying you need real probability below 7.2 percent to be positive EV is probably real. Two structural points: first, the strategy works on broad indexes (SPY, IWM, QQQ) where VRP is well documented, not on leveraged products. Second, even where VRP exists, it's not a free lunch. The same VRP that gives you positive EV in calm regimes turns sharply negative during vol expansion events (Feb 2018, March 2020, Q4 2022). The historical return profile is small steady gains punctuated by occasional large losses, so the realized Sharpe is not great even when EV is positive.

gob_magic

I’m slowly becoming detractor of Tom and his tasty world. Tho I’m grateful Mike from his Tasty days introduced me to the concepts. But they cover tip of the iceberg. VRP and the likes are good systems to understand. It actually explains some form of universal risk profile, regardless of options or stocks. Read up on Volatility trades if you’re interested.

HelloEarthSpaceWorld

Honestly I had not thought about open sourcing it, but that is not a bad idea. I'm using GPT's frontier model filled in with market info like delta, DTE, spread, open interest, IV, VRP, VIX, earnings/news, and RSI and to either approve or reject the trade.

esInvests

in a nutshell, my strategy and edge is to identify a handful of profit mechanisms that I understand well and find matching opportunities. i find profit mechanisms (PM) through observation and research. I then study those carefully (I call this profiling) and build individual strategies wrapped around those PMs. for an example, a common in the derivatives world is VRP - variance risk premium, the propensity for implied vol to rend over realized vol. simple enough at a high level but in operation, short vol strategies targeting these effects will experience large outsized losses periodically. the edge is designing a system to deploy during more lucrative times (accepting losses will still occur but will be compensated more appropriately) and scale down in less lucrative times. etc.

esInvests

a few thousand, not too much. not really a minimum to be profitable but there are efficiencies gained by having capital. there's also the reality of path - aka we may be trading something robust but that still will occur losing trades. if our capital runway is so short that we cant endure periods of bad path, that's a problem. when chatting with friends, i first normally turn them away from trading. for those that are serious about it, the initial offering is to papertrade first to practice without losing a ton and then from there thinking carefully about what kind of profit mechanisms they want to attach and if they're suitable for their account size. example, if a trader with $5K said - "Erik, I want to trade VRP through earnings releases" I would say "No you don't". while a completely valid profit mechanism, even a well executed short vol earnings strategy will go through bad paths than can be crippling to small accounts. but - provided a trader has papertraded and built a reasonable foundation, the more capital they can start with the better. if they've not done that, starting with more capital will likely just result in them losing it on stupid mistakes.

smohyee

It's literally not. Look up VRP.

FlashAlphaLab

mostly 45delta across tenors was most consistent performer for this test. its simply the most premium to capture VRP. tenors varied. 14 days is strong, followed by 45

FlashAlphaLab

The sim is biased pessimistic on entry - I lose at the fill and win on theta during the hold. But I also measured edge\_captured per fill and its negative in my data (mean \~−$0.04 to −$0.07). Won't really know how it behaves on the next gap-down until the next gap-down. That's the part you can't backtest your way around. also : * SL=100% paired with a 30% peak-to-trough drawdown circuit breaker - so the meta-stop fires before ruin compounds, even if the SL fill is much worse than sim. * Size the strategy assuming I'm off by \~2× on tail SL fills, not at the in-sample number. Long story but VRP trading doesn't seem as easy to backtest as I thought... I mean I could do thousands % but when you introduce proper methodology it sucks

FlashAlphaLab

I was testing new position immediately(bad results) with VRP signals - which improved things a lot. But still all in all moderate winnings at best. My current suspicion is fill simulator is too restrictive and you CAN get better fills on the market.

GammaReaper_

By "experimenting with strangles," based on your return profile, I believe you mean you've been "experimenting with selling strangles." 1. Shorting options works when you either get the direction right or VRP right. Get either wrong and you lose. 2. Same goes for buying options 3. Not all option strategies work in all markets. Selling puts in a bull market = brilliant trader. Bear market? Not so brilliant 4. Options can generate alpha because of their complexity well beyond that of simple equities and because of the never ending source of newbies that blow up trying to become rich trading them. 5. But to be successful, you need to match your the sophistication of your strategy to that of the instrument. Simple strategies like always sell vol regardless of the market or even selling vol when "IV is high" is the source of alpha for those of us that can evaluate the vol surface etc to exploit the resulting Inefficiencies.

HelloEarthSpaceWorld

There’s a writeup of some of the parameters here: [https://puthouse.com/blog/safety-first-trading-approach](https://puthouse.com/blog/safety-first-trading-approach) The app explains everything as well. It looks at trades around 7 to 14 DTE, 0.05 to 0.15 delta, decent liquidity based on OI, volume, and stock price, 15% max bid-ask spread, VRP > 1.10, RSI 30-70, no nearby earnings, and skips new entries when VIX is over 30 or there are underwater positions. The other piece is sizing and exits. CSP is capped at 15% of account equity, max 2 open CSPs per symbol, covered calls can only cover up to 80% of the shares for a symbol, max 5 open CCs per symbol, and max 2 same-symbol entries per day. For exits, it takes profit at 50% of premium received, exits if delta reaches 0.30 or exits option moves 1.5x of entry, and cooldown from new entries for 3 days after a risk exit.

amartya_dev

clean read Basically, the market is pinned between 700 and 710, with dealers controlling flow selling premium sounds good but VRP negative = you’re underpaid for risk condor makes sense; just don’t oversize real move only happens if vol spikes (vanna flips); otherwise, the chop continues

RipResponsible3866

I'm just finding my footing w investing (just about two years of putting money in) and I've recently solidified a new investment strategy for my portfolio: 80% for growth (64% US - VOO, SPMO, XMMO, AVUV; 16% International - SCHF, VXUS) and 20% primarily for dividends (VRP, SCHD, SPHD). Is this a well-diversified portfolio that'll grow well long-term (30+ years) and pay decent dividends in the medium term (10+ years)?

ThetaEdgeHQ

The VRP gap you are showing is consistent with what other SPY credit spread datasets find, but the part that matters most for trading is where in the distribution the edge actually lives. Two slicing variables tend to flip the picture. First, IV rank at entry. Selling 20 to 30 delta spreads when IV rank is under 30 historically captures a much smaller realized edge than the same structure when IV rank sits above 50, because the skew premium you are harvesting is itself a function of how stressed the vol surface was when you sold. Second, outcome timing. Hold to expiration versus 50 percent profit close changes both the realized mean and the tail distribution. The first smooths everything, the second caps the left tail. Would be interesting to see the edge broken out by VIX quintile at entry.

gaana15

Short strangles doesn't have 100% win rate. What did your backtest showed ? Your question shall be: What can community guide you on when they switch from selling strangle to not selling or buying and vice versa ? How did others overcome last 1 month as short sellers (specifically strangles in your case) If the next week IV is 40% and the next week RV comes out to be 42% we have negative VRP and despite high initial IV, seller may lose money. Second: an option doesn't remain delta neutral for very long by default.

GammaReaper_

Unusual Whales is one source of VRP. But again, a simple test is the value of the spread vs the max gain/loss. Provide an example or 2 of what trades you have put. Without telling me the outcome, I'll give you my assessment of the odds of profit of gain/loss based on buying/selling

crazybitcoinlunatic

How do I check VRP? I checked SVRPO and it’s ticking upwards today. I noticed lately the premium sucks. But I don’t know how to gauge when it’s good to sell and good to buy.

GammaReaper_

Are you just always selling spreads regardless of prices/IV? If so you are doing it wrong. If VRP is low/negative, there's money to be made by being long. A simple metric is to observe the rr of the trade. If a 5 wide SPX spread is trading for $0.20 one day then $1.40 another day, on avg you should be a buyer at $0.20 and a seller at $1.40. Always rotely buying/selling regardless is a sure way to lose $ in the long run.

Aigpil

the apr 21 expiry question is the tricky one for short vol. you're collecting one day of theta against overnight gamma exposure through a binary geopolitical event. oil already moved 10% in one session on hormuz opening -- if the ceasefire lapses tonight, that gamma spike can easily be 2-3x what you collected. at this point selling apr 21 is just a directional bet on ceasefire extension. the fomc is the cleaner theta sell imo. 97% no-change is already priced, the real risk is press conference language, whether powell frames post-war inflation as transitory or embedded. that tail is bounded. VRP there has been historically more stable than pure event binaries. 30-45 DTE bridging apr 28-29 beats anything touching apr 21 this week

nrubhsa

For me, better to invest the portfolio in equities entirely, or nearly, for the upside equity risk premium. Then, sell short term SPX puts / put spreads far OTM with the buying power provided by the portfolio to capture addition variance risk premium. SPX settles in cash, so no pin risk. It’s tax favorable with split LTCG and STCG and no influence to the basis like the cover calls. If you want to capture upside VRP, sell some calls or call spreads into the mix, or ICs. But the put side is more favorable for premium—the market is willing to pay more for downside protection than lottery tickets. To answer your question about risks, this has a lot to do with deltas / strike selection. You don’t mention this so it’s difficult to assess in full.

GammaReaper_

If you are looking at VIX and trading 0DTE options you might as well be flying blind. VIX is constant maturity 30 days. Look at VIX1D - it tells a completely different story. And if you haven't heard of VIX1D, make sure you study up on its construction because it's much different than VIX's and therefore behaves much differently. Plus it's not really the ABS value of IV that matters the most, it's VRP. The are vol selling opportunities at low levels of IV just as there are vol buying opportunities at high levels of IV. The key is whether realized vol is greater/less than IV, regardless of the level of IV.

yuckfoubitch

The only thing I don’t like about this is that you’re saying VRP is negative and IV is cheap. Why sell gamma/vega if that’s your assessment? Just delta hedge a straddle

jansonlau

This data perfectly validates the **8-14 DTE sweet spot** I use in my automated setup, which effectively captures the 'theta meat' while avoiding high-gamma risk near expiry. By layering in a **0.30 Delta emergency exit** and **VRP (IV/RV) filters**, you can solve the 'win rate without context' problem the other commenters are flagging. This shorter window provides the agility to reset strikes in shifting regimes that the traditional 30-45 DTE simply lacks.

GammaReaper_

I'm a better buyer than seller of vol at these levels. Humble brag - at last night's close I paid $1.10 and $0.20 for SPX 45 bp and 95 bp OOM call debit spreads respectively. I left money on the table but sold both for $3.50 each at different times today as the mkt wen bid. Cha- ching! Before the "cease fire", the same spreads were trading at $1.90-$2.25/ $0.85-$1.35 - the trade then was to sell them short. To state the obvious, options/vol markets are dynamic and you need to adjust your trading strategy accordingly. There is no such thing as an options strategy that works in all markets. VRP at its best!

EfficiencyMaterial51

HV will not Pr. Definition tell you how the future IV will look, that will give you an estimate, but not a facit. Calculating VRP’s won’t help as i will enter 20 high IV positions at the same time, every Strangel traded on weeklys, is hedged by a bought long call 2 year DTE. The strangels will be traded every week/month, so it wont help me to look for VRP for entry, as I will be in all the time. I am selling options, and have done for some time, but thank you for your attention to this matter…

GammaReaper_

You are asking the wrong question. Just because you sell options on high IV stock doesn't guarantee making $. A better metric - but not foolproof like everything else in options trading - is to target high VRP/HV stocks, which is not a static universe. If you don't know about VRP, you need to to do some more studying before jumping into selling options

nrubhsa

How to *best* capture VRP.

gaana15

I will research into inverse VRP to long options

esInvests

i would think entirely differently. for example, the question id ask with the SP ICs, is WHY do i think they make money? it's not because of theta. it's not because of the structure. its from a different reason, pertaining to volatility. this matters because when you shift your focus from structures (Iron condors) to profit mechanisms (the effect you're trying to monetize, in the case of the short SP ICs, that's VRP variance risk premium), that opens your mind to look for the effect in other places. thats what i would do next. i know tom personally and like him a lot, ive never been a large consumer of tasty. they are cool in what they do but i have a lot of differences in my methodologies.

esInvests

strategies I run are based on a handful of broad market effects: momentum (up and down), volatility (up, down, VRP, etc), correlations, catalysts, breakouts, those are kinda the big buckets. anything from a few to over 100. average floats closer to 20 or so (in the context of for something like a covered strangle in a levered ETF, i might have (3) pieces but im considering that one position). depends entirely on the market. current state, im 67% utilized. fluctuates from 7 figures to 6, never less than mid 6. i normally trade the account up, then pull capital out for other more passive investments and repeat this cycle.

KaiTrials

From the vis you showed , it doesn’t show the current vrp against historical vrp . Stocks like TSLA have constantly high VRP , so where’s your edge ?

123phi

I am using V skew, VRP, and term structured RV vs IV to pick volatility dislocations...that is literally the definition of vol arb lmao. It doesn't need to be a delta neutral strategy to be considered vol arb. Look at the actual table of data I am calculating

123phi

I am absolutely doing vol arb then. I'm not doing delta neutral vol arb, but I am using VRP, term tenored RV vs IV, V skew, and finding volatility dislocations... that is the definition of vol arb. Just because I am picking a direction and not delta neutral doesn't mean this isn't vol arb haha

MrDerivatix

I mainly use SPX. When VIX levels are relatively low (14-18) the Volatility Risk Premium (a.k.a VRP) is higher, so neutral strategies work like a charm. I use Kelly Criterion and portfolio percentages as a guide for the width of my spreads. For the deltas I follow a mix between IV, HV, and skew to find my “optimal” strikes.

GammaReaper_

I spent 20+ years trading derivatives on Wall Street (both sell and buy side). My natural inclination is to be net long vol/gamma, especially in the wings. However, that doesn't always mean I never play from the short side. I look at the 0dte/2dte (and longer) vol surface to identify anomalies. Most retail broker platforms use standard binomial (Cox-Ross-Rubenstein) B-S, or Bjerksund-Stensland models. Each has advantages but also limitations. Sophisticated trading houses/market makers use proprietary or SABR models to exploit the limitations/underlying assumptions of the ubiquitous models. I do also. I this use "model arbitrage" to identify cheap/rich options and buy/ sell them. I evaluate the Greeks in the overall portfolio and delta hedge the overall portfolio as the underlying moves. My game is to exploit VRP, but I do so from both the long and short sides. Both buying and selling options involve risks that can be managed. But I see no reason to limit options trading to being long only. I take what the market gives me and my approach allows me to generate alpha in all market regimes, not just when IV < RV. There's no trading more satisfying than being long gamma in a choppy, volatile market, as you are naturally buying the underlying low and selling it high. However, my overriding risk management principle is to be never short gamma in the wings. Fat tail events with blow up accounts that fail to recognize that fact.

ColtaineKK

Does FlashAlpha give you VRP or how/where do you ger that?

Minimum_Diamond6700

0DTE/1DTE buyer here, mostly SPX. I have a Python script polling a GEX/Greeks API (FlashAlpha) and it basically answers all your questions. Stop-loss: I set it at the nearest big gamma wall. It's a structural level, not some random %. Entries: I only go in when price is near a dealer gamma flip zone. No setup, no trade. Overtrading: I check VRP before every session. If implied vol is running way above realized, I know I'm overpaying for premium so I just skip the day. Speed: Usually hold 20min to 2hrs. The gamma data also tells me when decay is about to speed up so I don't sit in a trade too long. Honestly the biggest value is having real reasons to sit out. Pure buying is more about discipline than anything else.

esInvests

Few things: 1. You’re floating between IVP and IVR - to not confuse newer folks, these are different things. They’re similar most of the time but IVR is more prone to skew (it uses high and low end of the annual range vs IVP which is a simple percentage of days above / below current levels). 2. In no way is IVP (or IVR) terrible, they’re simply metrics. While I understand you label it that way for the post to gain traction which is totally cool, still worth noting. 3. Generally aligned on the remainder, solid post. 4. Risk premia or VRP is a useful metric, how has IV trended relative to realized vol. This needs to be lagged slightly to align them properly. 5. One of the most useful tools is actually creating a model to forecast your own vol. this will never be better than the market but it will provide a solid comparison to monitor changes and measure.

NewsFailures

Short vol: Extreme VRP (z-score > 2.5) Short vol: Dispersion trade (short SPX, long 2 components on equal notional value) Long vol: Mean reversion on Extreme Z-Score (z-score > +/- 3) Long vol: Mean expansion on pairs

heroyi

One isn't better than the other. Anyone that tries to say selling options is better is naive at best. Idk why or how people got this misconception but it isn't better. Just different. Yes, selling options have Greeks working for you and people flaunt the high probability but that is meaningless when it is nickels in front of a steam roller. They both require mastery to do so. If selling was so easy then you wouldnt have VRP.  Those that tell you they succeeded, leave out a very crucial point. They are, in tandem, successfully hedging with futures or other assets to cover their ass.  Everyone that sells knows the eventual pain of what it is like sitting in front of a high speed train. It sucks ass. Higher probability does not equate to positive EV. This isn't some secret and pretty easy to prove with basic math skills. And confining your trading to just selling or just buying is a gross oversimplification that is detrimental to your port 

options_regime

Easily 80% of my trades are now options. I run numerous strategies but on the short volatility side, I'm writing options to capture VRP. These are predominately non-directional trades expressed with strangles, iron butterflies, etc. On the long volatility side, I run a number of strategies as well. You get amazing convexity with long options (straddles, calls, or puts). So I'm looking for mean reversion underlyings where the call or put is cheap. Cheap defined as negative VRP plus 90-100% Realized Volatility %. Simply put, trying to generate consistent income by selling volatility and maximizing alpha by buying volatility.

sprezzatard

Price drives IV, not the other way around VRP is an edge. Otherwise, there would be no game Who would be in the business of selling a game that is priced to be lost?

nitoupdx

Skew on SPX moved lower yesterday even on the news. VRP is gone. A bunch of supportive delta fell off as well. The 15% news should introduce more volatility and uncertainty. If Trump does something geopolitical, like attack Iran, there isn’t a lot of supportive positioning.

thequiet_monk

Capturing VRP strategies. Those have been working not so well off late. Too many delta moves and you adjust to stay neutral and just end up paying commissions

roguetheta

Short vol isn’t an “edge”. There’s very clearly a reason there’s VRP (vol risk premia), if on its own it was strictly alpha, it would be lost to efficient market forces. This doesn’t happen. As a pro options trader, I would expect you to understand why.  eventually every seller learns how easy it is to blow out selling puts/calls in front of a freight train. Both require equal amount of mastery, absolutely correct by op, sincerely hope you’re not a pro 

Real-Evidence5494

Intrade multiple strategies, which focuses on capturing VRP, and majority of my capital is parked in a strategy which captures delta ( i make money on big moves ). I dont think it would sustain for years so im planning to move completely manual

Appropriate-Gur9344

I’d be interested to see if looking back he thought tasty attempted to over simplify option selling as a way of making it more approachable? From what I recall they solely focused on IV rank and IV as opposed to VRP (IV-RV). I’m sure if there was a poll there’s a lot of people who blew accounts by taking the tasty approach.

PlutosGrasp

Oh neat. Didn’t know whales had VRP tools.

BryGuy81

Totally agree with most of this especially that the VRP logic hasn’t changed. I think where I’m still thinking through it is whether faster spot movement and more frequent intraday stress changes the distribution of outcomes (earlier touches, more forced management) even if long run expectancy remains similar.

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.