rv_iv_vrp

1 thg 1, 2022

This script provides realized volatility (rv), implied volatility (iv), and volatility risk premium (vrp) information for each of CBOE's volatility indices. The individual outputs are:

- Blue/red line: the realized volatility. This is an annualized, 20-period moving average estimate of realized volatility--in other words, the variability in the instrument's actual returns. The line is blue when realized volatility is below implied volatility, red otherwise.

- Fuchsia line (opaque): the median of realized volatility. The median is based on all data between the "start" and "end" dates.

- Gray line (transparent): the implied volatility (iv). According to CBOE's volatility methodology, this is similar to a weighted average of out-of-the-money ivs for options with approximately 30 calendar days to expiration. Notice that we compare rv20 to iv30 because there are about twenty trading periods in thirty calendar days.

- Fuchsia line (transparent): the median of implied volatility.

- Lightly shaded gray background: the background between "start" and "end" is shaded a very light gray.

- Table: the table shows the current, percentile, and median values for iv, rv, and vrp. Percentile means the value is greater than "N" percent of all values for that measure.

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Volatility risk premium (vrp) is simply the difference between implied and realized volatility. Along with implied and realized volatility, traders interpret this measure in various ways. Some prefer to be buying options when there volatility, implied or realized, reaches absolute levels, or low risk premium, whereas others have the opposite opinion. However, all volatility traders like to look at these measures in relation to their past values, which this script assists with.

By the way, this script is similar to my "vol premia," which provides the vrp data for all of these instruments on one page. However, this script loads faster and lets you see historical data. I recommend viewing the indicator and the corresponding instrument at the same time, to see how volatility reacts to changes in the underlying price.