# The volatility risk premium

> Why implied volatility usually sits above what is realised, and how Beleth tries to collect the difference without taking unbounded risk.

![image](https://zmscvxdouuytwoutqtfa.supabase.co/storage/v1/object/public/docs-media/3a3d26db-6730-481b-a911-d4035deb3b65.jpg)
Option prices imply a future volatility. Realised volatility — what the
underlying actually does — is on average **lower**. That gap is the
volatility risk premium (VRP), and sellers of options are paid to carry it.

Beleth collects it with **short vertical credit spreads**: sell the nearer
strike, buy a further one for protection. The long leg caps the loss, which is
what makes the structure acceptable under the project's rules.

## The premium is not always there

The VRP shrinks, disappears, or inverts around stress. Beleth does not assume
it: it *measures* the premium on each tenor every cycle and only trades a
tenor that clears a configured threshold. Short-dated expiries were dropped
early on — the premium there is thin and unstable and gamma risk is high.

## The full reasoning

The strategy, organised by how much confidence each claim deserves — academic
research, industry convention, or our own choice — lives in the project's
`docs/playbook.md`, with a source on every line. The dashboard's **Strategy
playbook** page mirrors it.