VRP Z-Score
The rolling z-score of VRP — the primary timing signal for premium selling.
Definition
The VRP expressed as a z-score relative to its own rolling history (typically 252 trading days).
Formula
vrp_z_score = (vrp − mean_252d(vrp)) ÷ stdev_252d(vrp)
Uses a 252-day rolling window to normalise the current VRP against its own recent distribution.
Inputs
vrp (current)vrp history (252 days)
Output
vrp_z_scorevrp_percentile (0-100)
Interpretation
- z > +1.5: VRP is richly priced vs history. Strong short-vol setup.
- z < −1.5: VRP is compressed or negative. Short-vol danger zone.
- −1.5 < z < +1.5: normal range. Size by absolute VRP, not z-score.
API Reference
Endpoint
GET /v1/volatility/{symbol}
Tier
Alpha
Response field
vrp_z_score, vrp_percentile
Why VRP Z-Score Matters for Trading
TL;DR
VRP z-score compares today's VRP to a rolling 252-day distribution. Above +1.5 = rich. Below −1.5 = dangerous. Between = normal — size by raw VRP instead.
- What it measures
- Today's VRP normalised against its own 252-day rolling mean and standard deviation.
- What it signals
- Whether the current VRP is statistically rich, fair, or compressed versus its recent history.
- Why we measure it
- Absolute VRP levels mean nothing without a baseline. A 3% VRP on SPY is rich; on TSLA it's thin. Z-score normalises across names and regimes.
- Who uses it
- Systematic vol sellers timing entries, mean-reverting premium strategies, backtesters. Alpha tier.
How to read VRP Z-Score
z > +1.5
- VRP richly priced vs history
- High probability of reversion
- Prime short-premium entry
- Confirm with harvest score
Good for: short premium, iron condors
z < −1.5
- VRP compressed or negative
- Short-vol at high risk
- Long-vol setups favoured
- Typical stress-regime entry
Bad for: short premium — good for: long vol
−1.5 < z < +1.5
- Normal VRP regime
- Size on absolute VRP, not z
- No timing edge
- Standard trading regime
Normal
Rules of thumb
- Z-score is a timing tool. Use for entry selection, not strategy selection. Combine with regime for what to trade.
- Confirm with percentile. A 2-sigma z-score isn't enough if the rolling distribution is fat-tailed. Percentile adds robustness.
- 252 days is the default. Most backtests use 1-year windows; shorter (60d) overreacts, longer (504d) lags regime shifts.
- Extreme readings fade quickly. Z above +2 is a short-vol entry; z above +3 often means the regime is about to flip.
- Alpha tier. Requires 252-day VRP history — not in free/basic tiers.
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