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The difference between implied volatility and realized volatility (IV − RV). Positive VRP means options are priced for more movement than is actually occurring — the structural edge premium sellers harvest. VRP exists because option buyers pay a fear premium for downside protection. Academic research shows VRP has been persistently positive across markets and timeframes, making it one of the most reliable sources of return for systematic premium sellers.
⚡ KEY TAKEAWAY: VRP > +5pp = strong seller edge. VRP 2–5pp = moderate edge. VRP 0–2pp = marginal edge, be selective. VRP < 0 = avoid selling premium.
Implied Volatility (IV)
Higher IV = more premium to collect when selling options. But also more risk if the stock moves.
Realized Volatility (RV)
When RV is lower than IV, options are overpriced relative to actual movement — the core edge for sellers.
IV Rank
IV Rank > 50 = premiums elevated, good for selling. Below 30 = cheap, consider waiting.
IV Percentile
IV Percentile 80 = IV was lower than today 80% of the time. High percentile confirms elevated premiums.