Volatility Risk Premium Explained: Implied vs Realized Volatility

Roman Paolucci ยท Beginner ยท๐Ÿ”ข Mathematical Foundations ยท4w ago

About this lesson

*๐Ÿš€ Master Quantitative Skills with Quant Guild* https://quantguild.com *๐Ÿ›ก๏ธ Apply to Run a Personal Hedge Fund* https://quantguild.com/personal-hedge-fund *๐Ÿ“ˆ Interactive Brokers for Algorithmic Trading* https://www.interactivebrokers.com/mkt/?src=quantguildY&url=%2Fen%2Fwhyib%2Foverview.php *๐Ÿ‘พ Join the Quant Guild Discord server here* https://discord.com/invite/MJ4FU2c6c3 ___________________________________________ *๐Ÿช Free Jupyter Notebook Library ๐Ÿ‘‡* https://github.com/romanmichaelpaolucci/Quant-Guild-Library/tree/main *๐Ÿ‘ค Video Setting Up Interactive Brokers ๐Ÿ‘‡* https://youtu.be/7hezNf49iKc *๐Ÿ”— How to Read Options Chains ๐Ÿ‘‡* https://youtu.be/RrRbz6oXwxE TL;DW Executive Summary: * Implied volatility captures the marketโ€™s expectations for future price swings, while realized volatility reflects what actually happens. Both are essential for understanding risk and reward in options trading. * Our analysis showed that implied and realized volatility often diverge, creating opportunities for traders who can identify and exploit this gap. By visualizing historical data, we made these dynamics clear. * Systematic, rules-based volatility strategiesโ€”rather than relying on market timingโ€”can help build more resilient portfolios, especially during periods of heightened market uncertainty. I hope you enjoyed, and I hope you learned something! - Roman ___________________________________________ *๐Ÿ“– Chapters:* 00:00 - Why Hedge Funds Keep Selling Volatility 00:56 - Implied vs. Realized Volatility 01:56 - Black-Scholes Is a Pricing Model, Not a Prediction Model 02:42 - What Realized Volatility Actually Measures 03:53 - Why Markets Break Textbook Statistics 04:53 - Real-World Probability vs. Overfit Trading Models 05:51 - How Rolling Windows Change Realized Volatility 06:45 - Why Realized Volatility Lags the Market 07:37 - Choosing the Right Volatility Window 08:48 - How Implied Volatility Reflects Market Expectations 09:32 - Reading the Implied Volatility Surface 10:

Original Description

*๐Ÿš€ Master Quantitative Skills with Quant Guild* https://quantguild.com *๐Ÿ›ก๏ธ Apply to Run a Personal Hedge Fund* https://quantguild.com/personal-hedge-fund *๐Ÿ“ˆ Interactive Brokers for Algorithmic Trading* https://www.interactivebrokers.com/mkt/?src=quantguildY&url=%2Fen%2Fwhyib%2Foverview.php *๐Ÿ‘พ Join the Quant Guild Discord server here* https://discord.com/invite/MJ4FU2c6c3 ___________________________________________ *๐Ÿช Free Jupyter Notebook Library ๐Ÿ‘‡* https://github.com/romanmichaelpaolucci/Quant-Guild-Library/tree/main *๐Ÿ‘ค Video Setting Up Interactive Brokers ๐Ÿ‘‡* https://youtu.be/7hezNf49iKc *๐Ÿ”— How to Read Options Chains ๐Ÿ‘‡* https://youtu.be/RrRbz6oXwxE TL;DW Executive Summary: * Implied volatility captures the marketโ€™s expectations for future price swings, while realized volatility reflects what actually happens. Both are essential for understanding risk and reward in options trading. * Our analysis showed that implied and realized volatility often diverge, creating opportunities for traders who can identify and exploit this gap. By visualizing historical data, we made these dynamics clear. * Systematic, rules-based volatility strategiesโ€”rather than relying on market timingโ€”can help build more resilient portfolios, especially during periods of heightened market uncertainty. I hope you enjoyed, and I hope you learned something! - Roman ___________________________________________ *๐Ÿ“– Chapters:* 00:00 - Why Hedge Funds Keep Selling Volatility 00:56 - Implied vs. Realized Volatility 01:56 - Black-Scholes Is a Pricing Model, Not a Prediction Model 02:42 - What Realized Volatility Actually Measures 03:53 - Why Markets Break Textbook Statistics 04:53 - Real-World Probability vs. Overfit Trading Models 05:51 - How Rolling Windows Change Realized Volatility 06:45 - Why Realized Volatility Lags the Market 07:37 - Choosing the Right Volatility Window 08:48 - How Implied Volatility Reflects Market Expectations 09:32 - Reading the Implied Volatility Surface 10:
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Chapters (11)

Why Hedge Funds Keep Selling Volatility
0:56 Implied vs. Realized Volatility
1:56 Black-Scholes Is a Pricing Model, Not a Prediction Model
2:42 What Realized Volatility Actually Measures
3:53 Why Markets Break Textbook Statistics
4:53 Real-World Probability vs. Overfit Trading Models
5:51 How Rolling Windows Change Realized Volatility
6:45 Why Realized Volatility Lags the Market
7:37 Choosing the Right Volatility Window
8:48 How Implied Volatility Reflects Market Expectations
9:32 Reading the Implied Volatility Surface
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