What is the RV Ratio?
The RV Ratio compares 20-day historical volatility (ORATS HV 20d — how much the stock actually moved) to 30-day implied volatility (how much the options market expects it to move). A ratio below 1.0 means the stock is moving less than options imply — you are being paid for more risk than exists. A ratio above 1.0 means the stock is moving more than priced in — options may be underpriced.
Why premium sellers care about RV Ratio
Premium sellers profit when realized movement is less than what was priced into option premiums. A low RV Ratio (below 0.85) confirms this gap is wide — the stock is moving significantly less than options imply. This is exactly the condition where selling premium offers a quantifiable statistical edge.
Signal interpretation
Below 0.7: Very favorable — stock is exceptionally calm vs implied vol. 0.7 to 0.85: Good conditions for selling premium. 0.85 to 1.1: Normal range, be more selective with entries. 1.1 to 1.2: Realized vol approaches implied, reduce position size. Above 1.2: Vol spike territory — consider avoiding new short premium positions.
Using RV Ratio in practice
The best premium selling setups combine a low RV Ratio with positive VRP and no upcoming earnings. When a stock's realized volatility is well below implied volatility, you have a quantifiable edge. VolRadar computes RV Ratio daily for every S&P 500 ticker using ORATS 20-day close-to-close historical volatility and ORATS implied vol (IV 30d ATM).
RV Ratio vs VRP
RV Ratio and VRP measure similar things differently. VRP is the difference (IV minus HV) — expressed in percentage points. RV Ratio is the ratio (HV divided by IV) — expressed as a number around 1.0. Both use the same ORATS inputs (20-day close-to-close HV and IV 30d). The ratio form makes it easier to compare across stocks with different IV levels. A low RV Ratio always corresponds to positive VRP.