OPEN-SOURCE SCRIPT
VolEdge: VRP Gauge
VOLEDGE: VRP GAUGE — Is option premium rich or thin right now?
Before you sell a single option, you should know the answer to one question: are options overpriced relative to what the market is actually doing?
The Variance Risk Premium answers this. It is the single most important macro-level number for anyone who sells options for income.
Also note that reversal from rich to kind of poorer premiums tends to show market reversals.
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WHAT IT DOES
Displays the Variance Risk Premium: the spread between implied volatility (VIX) and realized volatility (30-day historical vol on the S&P 500).
VRP = VIX minus HV30
When VRP is large and positive, options are expensive relative to actual market movement. Premium sellers have a statistical edge — they are being paid more than the risk they are taking on.
When VRP is near zero or negative, options are fairly priced or cheap. Selling offers little edge or no edge at all. Buying vol may be the better play.
The indicator shows the VRP value, its percentile rank over the last 90 days (configurable), a visual gauge, the underlying components (VIX and HV30), the 5-day trend, and a plain-language strategy interpretation.
It also plots a color-coded VRP histogram in its own chart pane so you can see how premium richness has evolved over time.
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WHY VRP MATTERS
Most retail options traders check IV Rank on individual stocks — "is AAPL's IV high relative to its own history?" That is a useful question, but it misses the bigger picture.
VRP answers the macro question: "Is it a good day to sell options at all?"
When VIX is 20 and SPX has been realizing 20% annualized vol, there is no premium to harvest. VRP is near zero. You are selling options at fair value and taking on risk for no statistical edge.
When VIX is 20 and SPX has been realizing 12% annualized vol, VRP is +8. Options are significantly overpriced. Every strangle, iron condor, and short put you sell has a built-in statistical edge because the market is pricing in more movement than is actually occurring.
This is the fundamental asymmetry that drives institutional premium selling. Implied volatility exceeds realized volatility roughly 85% of the time — that is the variance risk premium. But the size of that premium varies enormously. Selling when VRP is rich compounds returns. Selling when VRP is thin or negative erodes them.
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VRP CLASSIFICATION — FIVE LEVELS
RICH (VRP above 5, percentile above 75th):
Premium is meaningfully overpriced relative to realized vol. This is the sweet spot for premium sellers. Options are expensive, and the market is not moving as much as options pricing implies. Strangles, iron condors, short puts, and credit spreads all have favorable expected value. This is when you can be most aggressive with premium selling — within your normal risk management rules.
ABOVE AVERAGE (VRP above 5, percentile 50th–75th):
Premium is above its recent average but not at extremes. Selling conditions are favorable. Standard position sizing applies. You have an edge, but it is not as large as during RICH periods.
FAIR (VRP between 0 and 5, percentile 25th–75th):
Premium is roughly in line with realized vol. There is a small edge to selling, but it is modest. Be selective — only sell on stocks with individually elevated IV rank. Avoid aggressive sizing. This is the "be patient" zone.
THIN (VRP between 0 and 5, percentile below 25th):
Premium is below its recent average. The edge from selling is minimal. This is a good time to reduce premium selling activity, tighten existing positions, or wait for better conditions. If you do sell, stick to the highest-conviction setups only.
NEGATIVE (VRP below 0):
Options are cheap relative to realized vol. The market is moving more than options pricing implies. This is rare and typically occurs during fast-moving selloffs where realized vol spikes faster than VIX. Selling premium here is unfavorable — you are being paid less than the risk. Consider buying vol instead: long straddles, debit spreads, or VIX calls.
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HOW TO USE IT — PRACTICAL WORKFLOW
Daily pre-market check:
Before entering any premium selling trade, glance at the VRP Gauge. If it reads RICH or ABOVE AVG, you have a green light to sell premium at normal or slightly increased size. If it reads FAIR, be selective. If it reads THIN or NEGATIVE, reduce activity or pivot to directional or long-vol strategies.
Combining with individual stock IV Rank:
The VRP Gauge tells you about the macro premium environment. Individual stock IV rank tells you about that specific stock. The best setup is: VRP RICH (macro edge) plus stock IV rank above 50th percentile (stock-level edge). Selling premium when both macro and stock-level conditions are favorable stacks the odds meaningfully in your favor.
Combining with the Vol Weather Report:
VRP RICH during a Normal or Low vol regime is the highest-confidence premium selling environment. VRP RICH during an Elevated or Crisis regime means premiums are rich but so is risk — size down accordingly.
Using the percentile reading:
The raw VRP number is useful, but the percentile tells you context. A VRP of +6 might be average in one market environment and exceptional in another. The percentile rank over the last 90 days (configurable) tells you whether today's VRP is historically rich or normal for recent conditions.
Using the 5-day trend:
VRP rising means the edge for sellers is improving — implied vol is expanding faster than realized vol, or realized vol is declining while VIX holds steady. VRP falling means the edge is shrinking. A falling VRP during a low-vol regime is a caution signal: realized vol may be catching up to implied vol, often before a volatility expansion.
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WHAT IS ON THE DASHBOARD
Row 1 — VRP classification badge: RICH / ABOVE AVG / FAIR / THIN / NEGATIVE with color-coded background
Row 2 — VRP value: the headline number (e.g. +7.24) in large text
Row 3 — Visual gauge bar: fills from left to right as VRP increases, colored by classification
Row 4 — Percentile rank: where today's VRP sits relative to the last 90 days (configurable)
Row 5 — Implied vol: current VIX level
Row 6 — Realized vol: HV30 (or configurable lookback) calculated on SPX
Row 7 — 5-day trend: Rising / Stable / Falling, with the value from 5 days ago
Row 8 — Strategy context: plain-language interpretation of current VRP conditions
Chart pane: VRP histogram showing the daily VRP value over time. Green bars = rich, yellow = fair, red = negative. Reference lines at 0 (breakeven), +5 (rich threshold), and -2 (deeply negative).
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THE CALCULATION
Realized volatility (HV30):
Standard deviation of daily log returns on the S&P 500 over the last 30 trading days, annualized by multiplying by the square root of 252.
HV = stdev(ln(close / close_previous), 30) * sqrt(252) * 100
Variance Risk Premium:
VRP = VIX - HV30
Percentile rank:
Counts what percentage of VRP values over the lookback period (default 90 days) were lower than today's reading. A reading of 82 means today's VRP is higher than 82% of the last 90 days.
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SETTINGS
Realized Vol Lookback: number of days for HV calculation (default 30, range 10–60)
VRP Percentile Lookback: number of days for percentile ranking (default 90, range 30–252)
Show VRP Histogram: toggle the chart-pane histogram on or off
Show Visual Gauge Bar: toggle the gauge bar in the table on or off
Table position: choose where the panel appears
Text size: Small / Normal / Large
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ALERTS
VRP Rich — fires when VRP crosses above 5 and is in the top quartile. Premium selling conditions are strong.
VRP Thin — fires when VRP drops below 2. Selling edge is diminishing.
VRP Negative — fires when VRP crosses below zero. Options are cheap vs realized vol.
VRP 90th+ Percentile — fires when VRP is in the top 10% of its recent range. Exceptionally rich premium.
VRP Bottom 10th Percentile — fires when VRP is in the bottom 10% of its recent range. Exceptionally thin premium.
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WHAT MAKES THIS DIFFERENT
Several TradingView scripts calculate historical volatility. A few compare VIX to HV. None of them:
— Present VRP with a percentile rank for historical context
— Classify VRP into actionable categories (Rich / Fair / Thin / Negative)
— Show the 5-day trend in the premium environment
— Provide a strategy context sentence for each classification
— Include a visual gauge and color-coded histogram for quick pattern recognition
The Variance Risk Premium is an institutional-grade signal used by professional options market makers and vol funds as a core input to their selling decisions. This indicator makes it accessible to any options trader with a TradingView account.
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ACADEMIC BACKGROUND
The variance risk premium — the tendency of implied volatility to exceed realized volatility — is one of the most documented phenomena in options markets. Key findings:
Implied vol exceeds realized vol approximately 85% of the time across major equity indices. The average VRP on the S&P 500 has been roughly 3–5 percentage points over multi-decade samples, but varies widely from negative to 15+ during stress periods.
The VRP is compensation for bearing volatility risk. When markets are calm, investors overpay for downside protection (puts), which inflates VIX relative to what actually happens. Premium sellers harvest this overpayment.
However, the VRP inverts during fast crashes when realized vol spikes above implied vol. This is exactly when premium sellers take their largest losses. Monitoring VRP in real time — not just knowing it exists on average — is critical for avoiding the trap of selling into a thin or negative VRP environment.
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WHAT THIS INDICATOR IS NOT
It is not a timing signal for individual trades. VRP tells you the macro premium environment, not which stock to sell or when to enter.
It is not a guarantee of profitability. VRP being RICH means the odds favor sellers on average, but individual trades can still lose. Risk management still applies.
It uses VIX as the implied vol proxy and HV30 on SPX as the realized vol proxy. These are standard institutional measures, but they are not perfect representations of the vol surface for every product or expiration. For individual stock premium selling, combine this macro VRP reading with the stock's own IV rank.
It is not financial advice. It is an analytical tool for your own decision-making.
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DISCLAIMER
This indicator is for educational and informational purposes only. It is not financial advice and should not be used as the sole basis for any trading decision. The variance risk premium is a well-documented statistical phenomenon, but past patterns do not guarantee future results. Options trading involves substantial risk of loss. Always do your own research and consider consulting a licensed financial advisor.
Before you sell a single option, you should know the answer to one question: are options overpriced relative to what the market is actually doing?
The Variance Risk Premium answers this. It is the single most important macro-level number for anyone who sells options for income.
Also note that reversal from rich to kind of poorer premiums tends to show market reversals.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
WHAT IT DOES
Displays the Variance Risk Premium: the spread between implied volatility (VIX) and realized volatility (30-day historical vol on the S&P 500).
VRP = VIX minus HV30
When VRP is large and positive, options are expensive relative to actual market movement. Premium sellers have a statistical edge — they are being paid more than the risk they are taking on.
When VRP is near zero or negative, options are fairly priced or cheap. Selling offers little edge or no edge at all. Buying vol may be the better play.
The indicator shows the VRP value, its percentile rank over the last 90 days (configurable), a visual gauge, the underlying components (VIX and HV30), the 5-day trend, and a plain-language strategy interpretation.
It also plots a color-coded VRP histogram in its own chart pane so you can see how premium richness has evolved over time.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
WHY VRP MATTERS
Most retail options traders check IV Rank on individual stocks — "is AAPL's IV high relative to its own history?" That is a useful question, but it misses the bigger picture.
VRP answers the macro question: "Is it a good day to sell options at all?"
When VIX is 20 and SPX has been realizing 20% annualized vol, there is no premium to harvest. VRP is near zero. You are selling options at fair value and taking on risk for no statistical edge.
When VIX is 20 and SPX has been realizing 12% annualized vol, VRP is +8. Options are significantly overpriced. Every strangle, iron condor, and short put you sell has a built-in statistical edge because the market is pricing in more movement than is actually occurring.
This is the fundamental asymmetry that drives institutional premium selling. Implied volatility exceeds realized volatility roughly 85% of the time — that is the variance risk premium. But the size of that premium varies enormously. Selling when VRP is rich compounds returns. Selling when VRP is thin or negative erodes them.
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VRP CLASSIFICATION — FIVE LEVELS
RICH (VRP above 5, percentile above 75th):
Premium is meaningfully overpriced relative to realized vol. This is the sweet spot for premium sellers. Options are expensive, and the market is not moving as much as options pricing implies. Strangles, iron condors, short puts, and credit spreads all have favorable expected value. This is when you can be most aggressive with premium selling — within your normal risk management rules.
ABOVE AVERAGE (VRP above 5, percentile 50th–75th):
Premium is above its recent average but not at extremes. Selling conditions are favorable. Standard position sizing applies. You have an edge, but it is not as large as during RICH periods.
FAIR (VRP between 0 and 5, percentile 25th–75th):
Premium is roughly in line with realized vol. There is a small edge to selling, but it is modest. Be selective — only sell on stocks with individually elevated IV rank. Avoid aggressive sizing. This is the "be patient" zone.
THIN (VRP between 0 and 5, percentile below 25th):
Premium is below its recent average. The edge from selling is minimal. This is a good time to reduce premium selling activity, tighten existing positions, or wait for better conditions. If you do sell, stick to the highest-conviction setups only.
NEGATIVE (VRP below 0):
Options are cheap relative to realized vol. The market is moving more than options pricing implies. This is rare and typically occurs during fast-moving selloffs where realized vol spikes faster than VIX. Selling premium here is unfavorable — you are being paid less than the risk. Consider buying vol instead: long straddles, debit spreads, or VIX calls.
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HOW TO USE IT — PRACTICAL WORKFLOW
Daily pre-market check:
Before entering any premium selling trade, glance at the VRP Gauge. If it reads RICH or ABOVE AVG, you have a green light to sell premium at normal or slightly increased size. If it reads FAIR, be selective. If it reads THIN or NEGATIVE, reduce activity or pivot to directional or long-vol strategies.
Combining with individual stock IV Rank:
The VRP Gauge tells you about the macro premium environment. Individual stock IV rank tells you about that specific stock. The best setup is: VRP RICH (macro edge) plus stock IV rank above 50th percentile (stock-level edge). Selling premium when both macro and stock-level conditions are favorable stacks the odds meaningfully in your favor.
Combining with the Vol Weather Report:
VRP RICH during a Normal or Low vol regime is the highest-confidence premium selling environment. VRP RICH during an Elevated or Crisis regime means premiums are rich but so is risk — size down accordingly.
Using the percentile reading:
The raw VRP number is useful, but the percentile tells you context. A VRP of +6 might be average in one market environment and exceptional in another. The percentile rank over the last 90 days (configurable) tells you whether today's VRP is historically rich or normal for recent conditions.
Using the 5-day trend:
VRP rising means the edge for sellers is improving — implied vol is expanding faster than realized vol, or realized vol is declining while VIX holds steady. VRP falling means the edge is shrinking. A falling VRP during a low-vol regime is a caution signal: realized vol may be catching up to implied vol, often before a volatility expansion.
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WHAT IS ON THE DASHBOARD
Row 1 — VRP classification badge: RICH / ABOVE AVG / FAIR / THIN / NEGATIVE with color-coded background
Row 2 — VRP value: the headline number (e.g. +7.24) in large text
Row 3 — Visual gauge bar: fills from left to right as VRP increases, colored by classification
Row 4 — Percentile rank: where today's VRP sits relative to the last 90 days (configurable)
Row 5 — Implied vol: current VIX level
Row 6 — Realized vol: HV30 (or configurable lookback) calculated on SPX
Row 7 — 5-day trend: Rising / Stable / Falling, with the value from 5 days ago
Row 8 — Strategy context: plain-language interpretation of current VRP conditions
Chart pane: VRP histogram showing the daily VRP value over time. Green bars = rich, yellow = fair, red = negative. Reference lines at 0 (breakeven), +5 (rich threshold), and -2 (deeply negative).
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THE CALCULATION
Realized volatility (HV30):
Standard deviation of daily log returns on the S&P 500 over the last 30 trading days, annualized by multiplying by the square root of 252.
HV = stdev(ln(close / close_previous), 30) * sqrt(252) * 100
Variance Risk Premium:
VRP = VIX - HV30
Percentile rank:
Counts what percentage of VRP values over the lookback period (default 90 days) were lower than today's reading. A reading of 82 means today's VRP is higher than 82% of the last 90 days.
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SETTINGS
Realized Vol Lookback: number of days for HV calculation (default 30, range 10–60)
VRP Percentile Lookback: number of days for percentile ranking (default 90, range 30–252)
Show VRP Histogram: toggle the chart-pane histogram on or off
Show Visual Gauge Bar: toggle the gauge bar in the table on or off
Table position: choose where the panel appears
Text size: Small / Normal / Large
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ALERTS
VRP Rich — fires when VRP crosses above 5 and is in the top quartile. Premium selling conditions are strong.
VRP Thin — fires when VRP drops below 2. Selling edge is diminishing.
VRP Negative — fires when VRP crosses below zero. Options are cheap vs realized vol.
VRP 90th+ Percentile — fires when VRP is in the top 10% of its recent range. Exceptionally rich premium.
VRP Bottom 10th Percentile — fires when VRP is in the bottom 10% of its recent range. Exceptionally thin premium.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
WHAT MAKES THIS DIFFERENT
Several TradingView scripts calculate historical volatility. A few compare VIX to HV. None of them:
— Present VRP with a percentile rank for historical context
— Classify VRP into actionable categories (Rich / Fair / Thin / Negative)
— Show the 5-day trend in the premium environment
— Provide a strategy context sentence for each classification
— Include a visual gauge and color-coded histogram for quick pattern recognition
The Variance Risk Premium is an institutional-grade signal used by professional options market makers and vol funds as a core input to their selling decisions. This indicator makes it accessible to any options trader with a TradingView account.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
ACADEMIC BACKGROUND
The variance risk premium — the tendency of implied volatility to exceed realized volatility — is one of the most documented phenomena in options markets. Key findings:
Implied vol exceeds realized vol approximately 85% of the time across major equity indices. The average VRP on the S&P 500 has been roughly 3–5 percentage points over multi-decade samples, but varies widely from negative to 15+ during stress periods.
The VRP is compensation for bearing volatility risk. When markets are calm, investors overpay for downside protection (puts), which inflates VIX relative to what actually happens. Premium sellers harvest this overpayment.
However, the VRP inverts during fast crashes when realized vol spikes above implied vol. This is exactly when premium sellers take their largest losses. Monitoring VRP in real time — not just knowing it exists on average — is critical for avoiding the trap of selling into a thin or negative VRP environment.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
WHAT THIS INDICATOR IS NOT
It is not a timing signal for individual trades. VRP tells you the macro premium environment, not which stock to sell or when to enter.
It is not a guarantee of profitability. VRP being RICH means the odds favor sellers on average, but individual trades can still lose. Risk management still applies.
It uses VIX as the implied vol proxy and HV30 on SPX as the realized vol proxy. These are standard institutional measures, but they are not perfect representations of the vol surface for every product or expiration. For individual stock premium selling, combine this macro VRP reading with the stock's own IV rank.
It is not financial advice. It is an analytical tool for your own decision-making.
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
DISCLAIMER
This indicator is for educational and informational purposes only. It is not financial advice and should not be used as the sole basis for any trading decision. The variance risk premium is a well-documented statistical phenomenon, but past patterns do not guarantee future results. Options trading involves substantial risk of loss. Always do your own research and consider consulting a licensed financial advisor.
สคริปต์โอเพนซอร์ซ
ด้วยเจตนารมณ์หลักของ TradingView ผู้สร้างสคริปต์นี้ได้ทำให้เป็นโอเพนซอร์ส เพื่อให้เทรดเดอร์สามารถตรวจสอบและยืนยันฟังก์ชันการทำงานของมันได้ ขอชื่นชมผู้เขียน! แม้ว่าคุณจะใช้งานได้ฟรี แต่โปรดจำไว้ว่าการเผยแพร่โค้ดซ้ำจะต้องเป็นไปตาม กฎระเบียบการใช้งาน ของเรา
คำจำกัดสิทธิ์ความรับผิดชอบ
ข้อมูลและบทความไม่ได้มีวัตถุประสงค์เพื่อก่อให้เกิดกิจกรรมทางการเงิน, การลงทุน, การซื้อขาย, ข้อเสนอแนะ หรือคำแนะนำประเภทอื่น ๆ ที่ให้หรือรับรองโดย TradingView อ่านเพิ่มเติมใน ข้อกำหนดการใช้งาน
สคริปต์โอเพนซอร์ซ
ด้วยเจตนารมณ์หลักของ TradingView ผู้สร้างสคริปต์นี้ได้ทำให้เป็นโอเพนซอร์ส เพื่อให้เทรดเดอร์สามารถตรวจสอบและยืนยันฟังก์ชันการทำงานของมันได้ ขอชื่นชมผู้เขียน! แม้ว่าคุณจะใช้งานได้ฟรี แต่โปรดจำไว้ว่าการเผยแพร่โค้ดซ้ำจะต้องเป็นไปตาม กฎระเบียบการใช้งาน ของเรา
คำจำกัดสิทธิ์ความรับผิดชอบ
ข้อมูลและบทความไม่ได้มีวัตถุประสงค์เพื่อก่อให้เกิดกิจกรรมทางการเงิน, การลงทุน, การซื้อขาย, ข้อเสนอแนะ หรือคำแนะนำประเภทอื่น ๆ ที่ให้หรือรับรองโดย TradingView อ่านเพิ่มเติมใน ข้อกำหนดการใช้งาน