The difference between the volatility the market priced and what actually happened. Positive rewards the seller.
What this premium is
The variance risk premium (Variance Risk Premium · VRP) is the systematic gap between the future volatility the options market prices (implied) and what actually happens (realized). Historically, implied sits above realized in most months, so insurance sellers collect steady pay for taking on the disaster day.
Why it exists and does not close
Because fear pays more than greed. Buyers of protection (institutions required to hedge, individuals afraid of a crash) regularly accept paying a premium above fair value, the way a homeowner pays for fire insurance knowing the expected loss. The seller earns that premium as the insurer.
How it is used in practice
It is the compass for "is selling premium paying right now?" A fat gap (implied well above realized) means generous insurance pay, an environment for collection strategies. A zero or negative gap (realized above implied) means the seller works for free or pays out. It is a warning that the market is truly being surprised.
Hypothetical example
A month with implied at 19% and 12% realized: insurance sellers collected a fat seven-point gap. The next month implied 17% and realized 26% (a data surprise): sellers paid the difference twice over. The premium is steady income broken by an occasional day of reckoning, and that is the contract as it really is.
Common mistake
Reading a positive premium as "guaranteed profit." It is pay for a real risk whose size varies. Selling blindly, without looking at its current size and the market regime, is collecting pennies in front of a steamroller.
What a negative premium says
When realized exceeds implied, the market is genuinely surprised: insurance sellers pay instead of collect. That is a stress state, not a chance to sell. Its return to positive afterward is one of the measured signs that turbulence is fading.
Where to see it on the platform
The VRP indicator measures the gap live with a clear verdict (generous, normal, negative), inside the market regime panel.
The VRP indicator measures the gap live with a clear verdict inside the market regime panel.
