📘 GARCH Quant Insights｜Volatility Risk Premium (VRP) Explained: Calculation Formula 🌪️📊 【Core Concept】 VRP (Volatility Risk Premium) measures the systematic gap where: Implied Volatility (what the market expects) is higher than Realized Volatility (what actually happens). It represents the extra “insurance premium” the market pays for volatility uncertainty — the key driver behind the long-term profitability of volatility-selling strategies. 🔢 Standard Calculation Formula VRP_t ≈ VIX_t − RV_t^(1m) ▫️ VIX_t : Current VIX index (market’s implied expectation of volatility over the next 30 days) ▫️ RV_t^(1m) : 1-month realized volatility of the S&P 500 📐 Realized Volatility (RV) Formula RV = √[252 × (1/n) Σ(r_i − r̄)²] × 100 (where r_i = daily log returns, n ≈ 22 trading days) 💡 GARCH Perspective & Practical Value • Extremely high VRP (e.g. 99th percentile) often serves as a leading signal of an impending volatility regime shift • Bayesian GARCH and GARCH-MIDAS models excel at dynamically capturing these risk-premium fluctuations • Provides institutions with a powerful quantitative basis for volatility timing and risk-parity allocation Understanding VRP = understanding exactly “how much the market is paying for uncertainty.” It is one of the most actionable metrics in volatility modeling. #VRP #VolatilityRiskPremium #VIX #RealizedVolatility #GARCH #BayesianGARCH #QuantitativeRiskManagement

📘 GARCH Quant｜Volatility is the True Source of Excess Returns 🌪️📊 I. Returns Come from Volatility, Not Price 📈 Most investors obsess over price direction. Top academic quant research has proven the opposite: RETURN PREDICTABILITY IS EXTREMELY LOW, but VOLATILITY PREDICTABILITY IS EXTREMELY STRONG. Volatility clustering, persistence, and asymmetry are the most reliable laws in financial markets. II. The Three Core Features of Volatility 🔬 1️⃣ Volatility Clustering Big moves tend to be followed by more big moves. Calm periods tend to stay calm. GARCH models were built exactly on this pattern — they remain the cornerstone of time-series risk control. 2️⃣ Leverage Effect (Asymmetry) Bad news triggers far greater volatility than good news. EGARCH, APARCH and other asymmetric models capture this “fear amplification” in bear markets with precision. 3️⃣ Long Memory Once volatility trends form, they can persist for months or even years. GARCH-MIDAS elegantly blends high-frequency volatility with low-frequency macro data. III. Why Volatility Strategies Deliver Long-Term Alpha 🧠 1️⃣ Risk-Pricing Bias Markets systematically overprice tail risk. Implied volatility stays persistently higher than realized volatility — creating a reliable premium for volatility-selling and risk-premium arbitrage strategies. 2️⃣ Mean-Reverting Nature Extremely low volatility eventually expands. Extremely high volatility eventually contracts. Target-volatility strategies and volatility timing thrive on this powerful reversion. 3️⃣ Low Correlation with Traditional Assets Volatility strategies show near-zero correlation with stocks and bonds — making them essential diversifiers for institutions. Volatility funds and hedge funds treat them as core portfolio building blocks. IV. GARCH in Practice 💡 Cross-sectional factors drive direction & returns GARCH volatility models drive position sizing & risk control High-volatility regime → Reduce factor exposure & hedge tail risk Low-volatility regime → Amplify factor exposure & boost return elasticity This is the institutional mantra: “LOOK AT FACTORS FOR RETURNS, LOOK AT VOLATILITY FOR SURVIVAL.” ✨ Core Conclusion Price determines profit or loss. VOLATILITY DETERMINES SURVIVAL. Only by stably forecasting volatility can you achieve true long-term compounding. #VolatilityModeling #GARCH #RealizedVolatility #AcademicTrading #InstitutionalQuant #RiskParity

30D #RealizedVolatility at 42.5% — market quieting down with less leverage and thinner volumes 📉🔴. Low liquidity making price sensitive to small flows with no clear trend emerging 💪. 1M #VolRiskPremium near zero — historically an attractive entry point for volatility buyers ⚡️🎯👀

Our recently accepted paper in the Journal of Empirical Finance is now published and can be downloaded for free with this link: authors.elsevier.com/a/1jK9Z… #IESEGResearch #machinelearning #finance #realizedvolatility

The dance of realized volatility measured across various time frames for the past 1 year. #Nifty #Volatility #OptionsTrading #RealizedVolatility

👀 Attn all #crypto enthusiasts! Ready for our read on the state of crypto? 🛑 Don't scroll past this! Want to find out what big players are up to in options? 🚀 Join us on a journey thru the world of crypto to stay ahead of the game. Dive into this week's Crypto Roundup ☟ ↓ ↓ ➠ #RealizedVolatility 𝞂 #BTC realised vol took another hit. Back into the 30s as spot found a tight range lower after Friday's drop. #ETH realised held up slightly better. Only dropping 5p to 40 vol. ↓ ↓ ➠ #ImpliedVolatility 𝞂 Short-dated implied vols have stayed pretty constant thanks to the Silvergate fallout. With crypto above key supports (BTC 21k & ETH 1450) and a slew of macro data due, we would expect implied vols to find some love at these levels. Even if RV remains low. ↓ ↓ 𝞂 Positive carry in both names at around 10 vols. Suggesting theta harvesting is still the main game in town. ↓ ↓ ☞ Wonder what option structure is best for earning theta in crypto options? More details in this week's Crypto Options Weekly note to subs ☜ ↓ ↓ ➠ #TermStructure 𝞂 BTC and ETH term structure remain in contango as realised vol grinds lower. ETH/BTC vol spread at 5-6 vol range across maturities. Seems fair considering with realised between 3-7. A long-term entry in the spread at around 5 vols looks very attractive. We remain long. ↓ ↓ ☞ Want the details of our positioning? Find it in this week's Crypto Options Weekly report! ☜ ↓ ↓ ➠ #Skew 𝞂 Short-dated skew remains in favour of puts as BTC spot heads back to the lower end of the 21-25k range. ETH skew has about 2-3 vols more put premium than BTC in the front end of the curve. This has been a consistent pattern lately. Long-end skew remains better bid for calls... ↓ ↓ 𝞂 6-month BTC skew at 2 vols for calls. ETH put skew is flatter further out the curve. The persistent ETH put skew is a potential selling opportunity for those underweight ETH and looking to add exposure. Whereas the BTC call skew in the long end makes #RiskReversal hedges very attractive. Especially for long-only type investors. ↓ ↓ ➠ Options #Flows 𝞂 BTC options volumes continue to fall as spot grinds lower. ETH flows heavily dominated by some large calendar selling flows. It's very interesting to see how it overwhelmed the rest of flows. ↓ ↓ ☞ Get full crypto options flows breakdown in this week's Crypto Options Weekly note to subs ☜ ↓ ↓ ➠ #Gamma Positioning 𝞂 ETH positioning staying fairly constant as spot grinds lower on poor realized vol. But overall, dealers look more balanced... Wait. What does that mean? ⇣⇣⇣⇣⇣⇣⇣⇣⇣⇣⇣⇣⇣ 🪺EASTER EGG🪺 Reply to this tweet with "GAMMA 🅿️" & I'll spell it out for you. 🥚EASTER EGG🥚 ⇡⇡⇡⇡⇡⇡⇡⇡⇡⇡⇡⇡⇡ ↓ ↓ ➠ #Strategy 𝞂 We suspect ETH may start outperforming and are looking at how to get exposure via options. Curious about what we're thinking? We also have a carry trade on that continues to perform well for us. Want the deets on that one too? Then you know where to get them by now...↴ ☞ Details in this week's Crypto Options Weekly note to subs ☜ 𝞂 𝞂 𝞂 ...and that's a wrap on this week's Crypto Roundup! Want more details on the current dynamics in crypto vol mentioned above? Go watch this week's Crypto Insight video on the Options Insight YouTube Channel! 🦾Powered by @Amberdataio ! (link in follow-up tweet) 𝞂 𝞂 𝞂 ➠ If you enjoyed this Crypto Roundup, let me know your thoughts or questions in the replies! And if you want even more detailed research and trade ideas on crypto and crypto vol... 𝞂 𝞂 𝞂 Follow the link in my Twitter Bio and use code RV2023 at checkout for a free month of our Crypto Options Weekly service. Cheers!

👀 Ready for another vol dive into the exciting world of #crypto to discover new opportunities? 💰 Wondering how big players are positioned for hedging or generating alpha? 🛑 Hold on, don't scroll any further! ➠ Click "...show more" to explore this week's Crypto Roundup! ☟ ↓ ↓ #RealizedVolatility 𝞂 As BTC 25k resistance was rejected and crypto sold off, implied vols got hit. Anticipating that realised would fall as we stayed in the 22-25k range. Sure enough, realised vol has collapsed by 20p in BTC and ~10p in ETH. Taking volatility carry back to positive. ↓ ↓ ➠ #ImpliedVolatility 𝞂 The implied vol collapse was accelerated by the dumping of calls that hadn't worked out but still had some premium left. Systematic vol selling after expiry/into the weekend did the rest. PCE inflation data took down stocks on Friday, and crypto markets could not ignore the macro. With carry back to median levels, short-dated implied vol looks fair to slightly cheap. But a catalyst is needed to break the range. ↓ ↓ ➠ #TermStructure 𝞂 #BTC term structure fell back into contango as the front end got hit hard last week. #ETH curve trading in line with BTC, with a steep contango. This is slightly surprising, given #Shanghai upgrade due in March. ETH/BTC vol spread trading in 5-6 vol range across maturities as 10d realised spread remains flat. The long-term chart of the vol spread suggests this is a great entry... ↓ ↓ ☞ More details can be found in this week's Crypto Options Weekly note to subs ☜ ↓ ↓ ➠ #Skew 𝞂 Skew normalising back towards flat as upside momentum was lost. BTC had been driving the call premium led by front-end expires. But has now faded back down to slightly in favor of call across all maturities. ETH skew also converging back towards neutral. ↓ ↓ 𝞂 This bid for #Calls in long-term BTC makes structural hedging using risk reversals look appealing. Especially for crypto players w/large treasuries to manage. We expect this flow will increase if BTC gets to ≈28k. On the other hand, the persistent ETH put skew is a potential selling opportunity... IF you are underweight ETH and looking to add exposure. ↓ ↓ ➠ #BTCoptions Flows 𝞂 Volumes dropped off as 25k resistance failed & 24Feb expiry rolled off. Some good two-way flows in 3Mar and 31Mar upside in 25-27K strike zone as calls that didn't work changed hands. Put protection buying also came back with 24k-19k strikes trading in 3Mar and 31Mar 30Jun saw straddle sellers on the 24k and 27k strike. Big outright buyers of 45k calls. ↓ ↓ ➠ #ETHoptions Flows 𝞂 Still very call dominated. Some two-way on puts with buyers of 3Mar 1600 and 30Jun 1000 puts. But a 10k clip of 26May 1500 #Puts sold. Upside bought in many forms. Notable clips were 10Mar 1700 calls, and 30Jun 1600/2100 call spreads. Big convexity trade in 30Jun as seller of 2500/3500 cal ratio 1 by 3 ↓ ↓ ➠ #Bitcoin #Gamma Positioning 𝞂 BTC dealer gamma still short. But less extreme as spot retraced lower, and upside got sold back. Dealers that are still short the 31Mar 26-28k zone have longs in front of it. So we see little #squeeze potential. ↓ ↓ ➠ #Ethereum #Gamma Positioning 𝞂 ETH positioning more long vol. 31Mar strikes look scattered from 1600-1900. We may see this flip if an upside move starts and call demand comes in. Taking dealers short. 𝞂 𝞂 𝞂 ➠ That's a wrap on this week's Crypto Roundup! 🙏 If you want more details, go watch this week's Crypto Insight video on the Options Insight YouTube Channel! 🦾Powered by @Amberdataio! (link in follow-up tweet) 𝞂 𝞂 𝞂 ➠ If you enjoyed this Crypto Roundup, let me know your thoughts or questions in the replies! And if you want even more detailed research and trade ideas on crypto and crypto vol... 𝞂 𝞂 𝞂 Follow the link in my Twitter Bio and use code RV2023 at checkout for a free month of our Crypto Options Weekly service. Cheers!

🧐 Are you getting curious about new opportunities to explore in the volatile world of #crypto? 🤔 Wondering where the smart money has been flowing these days? 🛑✋Well, stop your scrolling right now! ➠ And hit "...show more" to check out this week's Crypto Roundup! ☟ ☟ ☟ ↓ ↓ 𝞂 #RealizedVolatility Unlike #ETH realised vol, we've seen an explosive rally in #BTC. Back up to key 25k with realised vol up to ≈60%. Well above median levels. 𝞂 #ImpliedVolatility Spike on the move up, taking carry down to ≈ 0 in BTC, making gamma look cheap. ETH remains in positive carry at ≈ 10 vols. Dealers appear less short volatility keeping IV flat on the week. Options markets pricing either an imminent break or rejection of key 25k(BTC) and 1700(ETH). ↓ ↓ 𝞂 #TermStructure Inverted in BTC as the front end shifted higher by ≈ 10. While ETH curve trading very flat with front-end slightly softer. ETH/BTC vol spread shifting down as short-term realised flipped negative. Front-end BTC trading only 3 vols under ETH - even the back-end dropped down to 6 vols (historically cheap!). With BTC leading the charge up, we can see why the spread has converged in the front (gamma) part of the curve. ↓ ↓ 𝞂 #Skew Skew flipped into call premium, led by the front-end in BTC. Weekly skew at 4 vols for BTC calls. ETH only slightly for calls at 0.4. We had said that the front-end skew for puts didn't make too much sense given the positioning setup & techs. Back-end skew in BTC flipped to calls but to a lesser extent at ~ 2 vols. We think this call bid in the back-end for BTC is a good opportunity to enter mid-term crypto risk reversal hedges for those thinking crypto may see more weakness. ↓ ↓ 𝞂 #BTC Options Flows Volumes exploded higher last week $5.4Bn with lots of on-screen activity. 75% Calls. Big blocks of 24Feb 26k calls and 31Mar 30k calls bought to play the break higher. Some profit taking seen near highs in spot and vol with ITM call unwinds in 24Feb 23-26k strikes. Longer-dated call spreads in Jun-Dec23 expiries still active but not in as large size as the gamma. ↓ ↓ 𝞂 #ETH Options Flows Volumes also higher up to $3.1Bn. Still dominated by calls but more mixed flows with less outright buying of Vega. 30Jun 1600/2200 call spreads and 31Mar 2200 calls amongst the biggest blocks. Also saw put buying in 24Feb and 28Apr. 31Mar 1300/1800 bullish risk reversal traded in good size. ↓ ↓ 𝞂 #Bitcoin #Gamma Positioning BTC dealer gamma was short upside. This helped fuel the squeeze that we anticipated last week. As the market stabilized at 25k, calls have been closed or rolled up. This has dealers closer to flat locally, but they are still short upside above 26k. ↓ ↓ 𝞂 #Ethereum #Gamma Positioning ETH positioning more neutral. Dealers are short the local 24Feb 1700 strike but long wings around it. And in longer maturities like Mar and Jun23. We continue to think this will limit how quickly ETH can rally even as it breaks 1700 resistance. 𝞂 𝞂 𝞂 ➠ That's a wrap on this week's Crypto Roundup! 🙏 If you want more details, go watch this week's Crypto Insight video on the Options Insight YouTube Channel! 🦾Powered by @Amberdataio! (link coming in follow-up tweet) #options #trading #crypto #volatility 𝞂 𝞂 𝞂 ➠ If you enjoyed this Crypto Roundup, let me know your thoughts or questions in the replies! And if you want even more detailed research and trade ideas on crypto and crypto vol... 𝞂 𝞂 𝞂 Follow the link in my Twitter Bio and use code RV2023 at checkout for a free month of our Crypto Options Weekly service. Cheers!

Did you notice we missed our usual Crypto Roundup thread yesterday? Well, we're changing things up a bit. Starting w/moving to Wednesdays. & transitioning from thread format to a single long-form tweet. So let's give it a go & get you caught up w/this week's Crypto Roundup☟ ↓ ↓ ↓ 𝞂 #RealizedVolatility Despite significant 5-6% drop last Thursday on US regulatory crackdown reports, RV has been relatively subdued & drifted lower WoW. #ImpliedVolatility, on the other hand, spiked when spot started to look weak and was testing the week's lows. As a result, positive carry exploded to 17 vols, likely not sustainable and only holding because of yesterday's CPI vol event. With BTC and ETH sitting just above key support levels of 21k and 1400, we suspect RV will likely bounce from here. ↓ ↓ ↓ 𝞂 #TermStructure Term structures started flattening back from contango as gamma caught a bid before CPI. ETH/BTC vol spread shifting even higher to 15 vols as ETH gives back its recent outperformance. The better RV in ETH has persisted on potential for an upside catalyst in the Shanghai upgrade. But now we have a fresh downside catalyst with all of the recent regulatory crackdown. ↓ ↓ ↓ 𝞂 #Skew Little change in ETH skew this week. But BTC has continued to move more towards puts - catching up to ETH skew levels. We've mentioned that we feel long-dated skew in BTC being for calls is not justified in our opinion, but a very slight call skew still remains in the back end. The short-dated skew is deeper for puts as recent bearish price action and newsflow have spooked markets. Increasing near-term hedging demand. ↓ ↓ ↓ 𝞂 #BTC Options Flows Volumes came down this week as spot continued to fade on @krakenfx headlines. Upside calls were closed out in Feb-Mar expiries in the 24-30k range. Put protection bought in the form of 17Feb 21.5k/21k put spreads and 31Mar 21k puts outright. Largest clip was a Mar23/Sep23 diagonal call calendar. ↓ ↓ ↓ 𝞂 #ETH Options Flows Started the week bullish as short-dated (Feb) 1700 and 1800 calls were being used to chase the potential break higher. April 1400/2400 bullish risk reversal traded, taking advantage of put skew to get long. As spot rolled over, flows turned more bearish. ↓ ↓ ↓ 𝞂 #Bitcoin #Gamma Positioning BTC dealer gamma is very spot sensitive still. The main long strike looks to be 24Feb 21k, but there are plenty of short upside strikes in Feb all the way up to 25k. We see this as fuel for a squeeze if the news flow can improve. ↓ ↓ ↓ 𝞂 #Ethereum #Gamma Positioning ETH positioning quite neutral here. But dealers appear to be short skew and long calendars. This means the gamma profile is less explosive to the upside, unlike BTC. Suggests the more significant move in ETH should be on the downside, as reflected in skew pricing. 𝞂 𝞂 𝞂 𝞂 And that's a wrap on this week's Crypro Roundup! I'm incredibly grateful you made it this far 🙏 If you want more details, go watch yesterday's Crypto Insight video on the Options Insight YouTube Channel! (link coming in follow-up tweet) 𝞂 𝞂 𝞂 𝞂 Let me know your thoughts or questions about anything above in the replies! And especially, let me know how you feel about this single long-form tweet vs. the usual thread format. 𝞂 𝞂 𝞂 𝞂 BONUS You don't want to miss our Options Insight Live on Twitter Space tomorrow from 11am ET - 12 pm ET. @Levraham, @rush_btc, and @genesisvol will all be joining as guest speakers to go over all of the crypto goodness above! (h/t @ZetaMarkets & @Amberdataio) (link for reminder and access to be attached in follow-up tweet)

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i let you guess where i bought those dpx calls Taking in account volatility when buying is key 👇 @dopex_io #realizedvolatility #impliedvolatility #dpx @ImpDao

Kevin Davitt gives us a market update and talks #RealizedVolatility, #Straddle, $SPX, $VIX, #Earnings, and #CPI.

Dan Deming @djd551 talks $VIX, #RealizedVolatility, #Futures, #Callspread, and #Putspread.

#ChitChaRt | Episode 25 : Market Review by @ap_pune & Tracking #ImpliedVolatility & #RealizedVolatility (Historic Volatility) by @Raghunath_TL. Watch Episode : youtu.be/CSDnhWcUKu8?t=1 #OPSTRA #TradePoint #Definedge #NoiselessCharts

Q: What is Realized Volatility? A: Realized volatility refers to the measure of daily changes in the price of a security over a particular period of time. It assumes the daily mean price to be zero in order to provide movement regardless of direction. #realizedvolatility

Realized Volatility within FX, Equities, Fixed Income & Oil reaches an all-time high. #Macrobond #realizedvolatility

Over the past week, BTC/USD realized volatility rose rather dramatically from 52 percent to around 72 percent. @skewdotcom #C2CX #BTC #USD #realizedvolatility

In the short-term, the realized volatility of the #cryptocurrency jumped up. According to Skew, #Bitcoin's 10-day realized volatility reached a high of 73 percent. @skewdotcom #C2CX #crypto #BTC #realizedvolatility

日経VIもだけど、日経平均の #RealizedVolatility も年率30％超えて来たな😱 リーマンショックや東日本大震災時水準よりははるかに低いけど realized.oxford-man.ox.ac.uk…

Neither! High #ImpliedVolatility and High #RealizedVolatility, both simply cause of uncertainty of #Budget2020 #OptionsTrading #OptionsPricing #EventTrading