Term VRP
VRP decomposed by DTE bucket — the term structure of the risk premium.
Definition
VRP computed per DTE bucket (typically 7d, 14d, 30d), so the premium is broken out by time horizon instead of averaged across the chain.
Formula
term_vrp[dte] = iv(dte) − rv(dte_matched_window)
Each bucket matches its IV to a realised-vol window of the same length for an apples-to-apples spread.
Inputs
iv per DTE bucketrv per matching window
Output
term_vrp[7d, 14d, 30d]
Interpretation
- Front positive, back positive: broad-based premium. Healthy harvest regime.
- Front negative, back positive: stress building in short-dated IV. Sell back, not front.
- Front positive, back flat: event-driven front richness. Fades after event.
API Reference
Endpoint
GET /v1/volatility/{symbol}
Tier
Growth
Response field
term_vrp.dte_7d, term_vrp.dte_14d, term_vrp.dte_30d
Why Term VRP Matters for Trading
TL;DR
Term VRP splits the premium by DTE. Short-dated going negative while long-dated stays positive is the canonical regime-change warning.
- What it measures
- VRP computed separately for 7-day, 14-day, and 30-day buckets.
- What it signals
- Whether the short end of the curve is leading into a regime shift before the long end catches up.
- Why we measure it
- Aggregate VRP averages across the chain. The term decomposition shows you which part is carrying the edge and which part is breaking.
- Who uses it
- Systematic vol sellers, calendar-spread traders, event-trade specialists.
How to read Term VRP
All buckets positive
- Broad premium harvesting works
- Iron condors, calendars, strangles all win
- Short-dated AND long-dated rich
- Typical calm-regime reading
Good for: full premium harvesting
Front negative
- Short-dated RV exceeding IV
- Regime shift starting at the front
- Avoid short-dated selling
- Long-dated still salvageable
Bad for: near-dated sellers
Mixed / transition
- Some buckets up, some flat
- Size down
- Favor tenor where VRP is richest
- Default when regime unclear
Selective
Rules of thumb
- Front is leading indicator. A negative 7d VRP with positive 30d VRP is a warning — regime is shifting at the front.
- Calendar traders use the spread. Long back, short front when back-month VRP > front-month VRP.
- Event days inflate front. Earnings pushes 7d IV sky-high. Back it out of raw term VRP.
- Pair with term structure. Term structure is IV slope; term VRP is IV vs RV slope. Different views.
- Per-DTE matching is critical. Using 30-day IV vs 5-day RV would be meaningless; the windows must match.
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