IV-RV Spread (VRP Detail)

Q: What is the IV-RV spread?

The IV-RV spread is the difference between implied volatility and realized volatility for a specific lookback window. FlashAlpha computes it across four windows: vrp_5d (5-day), vrp_10d (10-day), vrp_20d (20-day), and vrp_30d (30-day). Each window captures a different horizon of the volatility risk premium, and the overall assessment label summarizes the composite state.

Q: What do the IV-RV assessment labels mean?

very_high_premium: IV massively exceeds RV across all windows — strong edge for sellers. healthy_premium: positive spread across most windows — normal conditions for premium selling. moderate_premium: spread is positive but thin — edge is present but smaller. thin_premium: barely positive — not worth the risk for short premium. negative_spread: RV exceeds IV in some windows — caution. danger_zone: RV exceeds IV across all windows — avoid selling premium.

Q: How is IV-RV spread different from VRP?

VRP is the general concept (implied minus realized volatility). The IV-RV spread section in FlashAlpha's API is the detailed implementation — it breaks VRP into per-window values (5d, 10d, 20d, 30d) and adds an assessment label. Think of VRP as the concept and iv_rv_spreads as the measurement.

Q: How do I get IV-RV spread data via API?

FlashAlpha's GET /v1/volatility/{symbol} returns the iv_rv_spreads section with vrp_5d, vrp_10d, vrp_20d, vrp_30d, and assessment. Growth tier and above. Example: curl -H 'X-Api-Key: YOUR_KEY' https://lab.flashalpha.com/v1/volatility/SPY

Q: Why does IV-RV Spread matter for trading?

The IV-RV spread per window unpacks the VRP into a term structure. Traders use it to confirm that the short-vol edge is broad-based (all windows positive) rather than concentrated in one tenor, and to detect early warning signs when the short end turns negative before the long end.

Q: When is IV-RV Spread good versus bad for a trader?

Good when positive across all windows — short premium sellers have structural edge. Bad when the short end turns negative — regime is shifting, cut exposure. Mixed windows mean transition; reduce size and watch for resolution before adding.

Per-window implied-vs-realized volatility spreads with assessment labels — the granular view of the volatility risk premium.

Definition

The per-window spread between ATM implied volatility and realized volatility across 5-day, 10-day, 20-day, and 30-day lookback windows. Each window captures a different horizon of the volatility risk premium. The composite assessment label summarizes whether conditions favour premium selling or buying.

Formula

vrp_Nd = σ_IV(ATM) - σ_RV(N days)

Where N is the lookback window (5, 10, 20, or 30 days). Positive = IV exceeds RV. Negative = RV exceeds IV.

Per-window fields

vrp_5d vrp_10d vrp_20d vrp_30d

Assessment labels

very_high_premium healthy_premium moderate_premium thin_premium negative_spread danger_zone

Interpretation

very_high_premium / healthy_premium: IV substantially exceeds RV. Premium selling has a structural edge. Size accordingly.
moderate_premium / thin_premium: edge is thin or marginal. Tighten position sizes and be selective on entries.
negative_spread / danger_zone: RV exceeds IV. Short premium is structurally unprofitable. Consider debit strategies or flat.

Live Example: SPY

Live SPY data temporarily unavailable. See /stock/spy/vol-surface for current values.

Get IV-RV Spreads via API

Endpoint

GET /v1/volatility/{symbol}

Tier

Growth+

Response shape (iv_rv_spreads section)

{
  "iv_rv_spreads": {
    "vrp_5d": number,
    "vrp_10d": number,
    "vrp_20d": number,
    "vrp_30d": number,
    "assessment": "very_high_premium" | "healthy_premium" |
                  "moderate_premium" | "thin_premium" |
                  "negative_spread" | "danger_zone"
  }
}

curl -H "X-Api-Key: YOUR_KEY" \
  https://lab.flashalpha.com/v1/volatility/SPY

import requests
r = requests.get(
    "https://lab.flashalpha.com/v1/volatility/SPY",
    headers={"X-Api-Key": "YOUR_KEY"}
)
spreads = r.json()["iv_rv_spreads"]
print(f"5d: {spreads['vrp_5d']:.1f}%  20d: {spreads['vrp_20d']:.1f}%")
print(f"Assessment: {spreads['assessment']}")

const r = await fetch(
  "https://lab.flashalpha.com/v1/volatility/SPY",
  { headers: { "X-Api-Key": "YOUR_KEY" } }
);
const s = (await r.json()).iv_rv_spreads;
console.log(`5d: ${s.vrp_5d}%  20d: ${s.vrp_20d}%  Assessment: ${s.assessment}`);

Why IV-RV Spread Matters for Trading

TL;DR

The IV-RV spread is VRP decomposed per window. Persistent positive across windows = strong short-vol edge. Negative = danger.

What it measures: IV minus RV computed separately for 5d, 10d, 20d, 30d, 60d windows.
What it signals: The term structure of the vol risk premium. A healthy curve is positive across all windows; a stressed curve goes negative at the short end first.
Why we measure it: A single VRP number averages a term structure. The per-window view catches early warning signs the aggregate hides.
Who uses it: Vol traders, systematic short-vol desks, volatility targeters.

How to read IV-RV Spread

Positive across all windows

Structural short-vol edge present
Short premium harvests cleanly
Iron condors / strangles win
Fits positive gamma

Good for: premium selling across tenors

Negative at short end

RV exceeding IV on recent windows
Vol regime shifting
Early warning for short-vol
Reduce exposure

Bad for: short-dated sells — good for: front-month buyers

Mixed / oscillating

Some windows positive, some negative
No clear regime
Trade size down
Transition period

Watch

Rules of thumb

Short end is leading indicator. 5d and 10d spreads shift first. A negative 5d with positive 30d is a warning.
All positive = structural edge. When every window shows IV > RV, short-vol has structural tailwind.
Term shape matters. A steeply positive curve (30d much bigger than 5d) vs a flat curve tell different stories.
Use with VRP regime. The regime label aggregates the per-window view into an actionable bucket.
Event days corrupt short windows. Earnings and FOMC inflate 5d IV-RV — back them out before comparing.

How to Read IV-RV Spreads

The multi-window approach is critical because different trading strategies have different holding periods. A 0DTE iron condor cares about vrp_5d because it is exposed to the most recent realized vol. A monthly credit spread cares about vrp_20d or vrp_30d because it holds through a full realized-vol cycle. Matching your strategy horizon to the right VRP window prevents false signals.

When all four windows are positive, the premium-selling edge is robust across horizons — the market is consistently overpricing movement. When short windows (5d, 10d) are negative but long windows (20d, 30d) are still positive, the underlying may be experiencing a transient vol spike. This is a common setup after a gap move: realized vol spikes for a few days, then mean-reverts. Experienced traders may see this as an entry opportunity if the long-window spread supports the thesis.

The assessment label synthesizes all four windows into a single actionable signal. Use it as a quick filter, then drill into the individual windows for nuance. A danger_zone assessment should halt all short-premium activity regardless of what any single window shows.