What is the volatility risk premium?
It’s the tendency for option-implied volatility to sit above the volatility that actually follows. When the market prices options as if the S&P will swing 18% annualized over the next month and it only swings 14%, that 4-point gap is the premium — and it’s been positive far more often than not.
How it’s measured
For each date: take the volatility index reading (VIX, VXN, OVX, GVZ), then measure the annualized standard deviation of the underlying’s daily returns over the following 21 trading days. Implied minus realized is the volatility risk premium for that date. A positive number means options were “rich” relative to what happened.
Why anyone gets paid it
Someone buying a put is buying insurance; someone buying a straddle is buying the right to profit from a big move. Both are paying up for protection and convexity. The seller on the other side collects that payment for taking on the risk of the large move. On average the move doesn’t come, and the seller keeps the premium — but when it does come, the seller pays, often more than a year of premiums at once.
See it across four markets
The cross-asset table compares the premium, its confidence interval, its skew, and its worst days for the S&P 500, Nasdaq-100, crude oil and gold — plus a “right now” reading of where each one sits today.
Open the cross-asset view →Common questions
What's the difference between the volatility risk premium and the variance risk premium?
They measure the same idea. The variance risk premium is usually stated in variance units (implied variance minus realized variance) and is the form most academic papers use. The volatility risk premium states it in volatility-point units, which is easier to read against a VIX level. This site uses volatility points.
Why does it exist?
Option buyers are paying for insurance and convexity — protection against large moves. Sellers are compensated for warehousing that risk. It's the volatility analog of the equity risk premium: you're paid, on average, for holding something that hurts exactly when everything else does.
How big is it?
On this site's measurement, implied has exceeded subsequent realized volatility by roughly +3.7 points for the S&P 500, +4.0 for the Nasdaq-100, +5.8 for crude oil, and +2.6 for gold, on average.
Research and education only — not investment advice. A positive average premium is a descriptive fact about history, not evidence an investor can earn it.