Implied volatility is usually a markup.
The volatility risk premium is the tendency for option-implied volatility to exceed the volatility markets subsequently realize — the compensation sellers demand for taking crash risk. This project measures it across four asset classes, back to 1990, and asks whether it survives an honest out-of-sample test.
Implied volatility has exceeded subsequent realized volatility by an average of 3.7 points for the S&P 500 (95% CI 2.9 to 4.3), positive in 4 of 4 markets out of sample.
Option buyers are paying for insurance and convexity; sellers are paid to warehouse the risk of a large move. The premium is largest in the calmest regimes and inverts during crises.
Hard. After costs the edge shrinks sharply, the losses cluster, and a delta-unhedged seller is also betting on small moves. This is difficult and dangerous to monetize.
Where the premium sits right now
most recent reading · Oct 2026| Market | Implied | Last-month realized | Gap now | vs. its own history |
|---|---|---|---|---|
| S&P 500^VIX | 16.4 | 9.4 | +6.91 pts | 81th pctrich vs history |
| Nasdaq-100^VXN | 22.9 | 16.8 | +6.06 pts | 68th pctrich vs history |
| Crude oil (USO)^OVX | 49.1 | 37.6 | +11.57 pts | 81th pctrich vs history |
| Gold (GLD)^GVZ | 22.3 | 22.0 | +0.37 pts | 22th pctthin vs history |
“Gap now” is the vol index minus the volatility the underlying actually delivered over the past month — both known today, unlike the forward-looking VRP used elsewhere on the site. The percentile ranks that gap against every day in each market’s history. A refresh of the data moves these.
Where the premium shows up
| Market | Mean VRP | 95% CI | Skew | Worst 1% | OOS VRP | t-stat | Straddle Sharpe | …after costs |
|---|---|---|---|---|---|---|---|---|
| S&P 500^VIX | +3.68 | 2.9 … 4.3 | -3.2 | -22 | +3.73 | 10.4 | 1.33 | 0.78 |
| Nasdaq-100^VXN | +4.06 | 3.2 … 5.0 | -2.1 | -24 | +2.96 | 8.8 | 0.76 | 0.34 |
| Crude oil (USO)^OVX | +5.81 | 3.9 … 6.9 | -0.3 | -22 | +6.18 | 7.1 | 0.46 | 0.16 |
| Gold (GLD)^GVZ | +2.64 | 1.9 … 3.5 | -1.7 | -24 | +2.01 | 6.9 | 0.49 | 0.08 |
VRP is in annualized volatility points: the vol index minus realized volatility over the next 21 trading days. t-stat is on non-overlapping monthly observations. “Straddle Sharpe” is the illustrative unhedged monthly short straddle; “after costs” applies a 5% bid/ask haircut and 0.15% commission — see methodology.
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Data through Sep 2026 · generated Oct 2026