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.
Last updated August 31, 2026
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.