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Directional VRP

The side-by-side decomposition of VRP into put-wing and call-wing premium.

Definition

A decomposition of the Volatility Risk Premium into its put-side and call-side components using 25-delta wing IVs and semi-deviation realised vol.

Formula
downside_vrp = put_wing_iv_25d − downside_rv_20d
upside_vrp = call_wing_iv_25d − upside_rv_20d

Semi-deviation RV is computed only from down-moves (downside_rv) or up-moves (upside_rv) over the 20d window.

Inputs
put_wing_iv_25dcall_wing_iv_25ddownside_rv_20dupside_rv_20d
Output
downside_vrpupside_vrp
Interpretation
  • Positive downside_vrp: put wings are richer than realised down-move vol. Classic short-put edge.
  • Negative downside_vrp: realised down-moves exceeded put wing IV — stress regime. Short puts bleed.
  • upside_vrp differs from downside_vrp: asymmetric wing pricing. One side is richer than the other.

API Reference

Endpoint
GET /v1/volatility/{symbol}
Tier
Alpha
Response field
downside_vrp, upside_vrp

Why Directional VRP Matters for Trading

TL;DR

Directional VRP splits the risk premium by direction. If downside_vrp is fat but upside_vrp is thin, short puts are the edge and short calls aren't. The split tells you which side to sell.

What it measures
Put-wing and call-wing IV measured against downside- and upside-only realised vol, so each leg of the VRP is isolated.
What it signals
Which wing of the smile carries the tradeable premium.
Why we measure it
Aggregate VRP smears the put and call sides together. Decomposing by direction surfaces one-sided setups that raw VRP hides.
Who uses it
Systematic short-vol funds, put-spread sellers, call-spread sellers, dispersion desks. Alpha tier.

How to read Directional VRP

downside_vrp high, upside_vrp thin
  • Put wings rich, call wings fair
  • Short put spreads win
  • Avoid short calls — no edge
  • Classic stress-regime residual premium
Good for: short-put spreads, put ratio sells
downside_vrp negative
  • Realised drawdowns exceeding put IV
  • Short puts lose money
  • Long-put hedges work
  • Sustained danger-zone regime
Bad for: short puts — good for: long downside
Symmetric positive
Balanced harvest

Rules of thumb

  • Check both sides before sizing. A 15-vol downside VRP with a 2-vol upside VRP is fundamentally a one-sided trade, not a strangle trade.
  • Asymmetric VRP signals skew regime. Steep skew = fat downside VRP, thin upside VRP.
  • Use with harvest score. Harvest score aggregates; directional VRP tells you how to express.
  • Semi-deviation is noisy on short windows. The 20d window is standard; shorter windows become unreliable quickly.
  • Alpha tier only. Requires wing IV fitting and semi-deviation computation — not exposed on free/basic tiers.

Related Concepts

VRP
Volatility Skew
Harvest Score
VRP Regime

Learn More

API documentation
GET /v1/volatility/{symbol}
Related concept
Volatility Skew
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