Gap-volatility Relation

Gap-volatility Relation splits total variance into overnight and intraday components and plots the overnight share as a percentage — the gap-volatility relation turned into a chartable tool for the first time. The Overnight Variance Share line runs against a dashed High Share Threshold, and a dashboard adds component volatilities, gap expansion, frequency, fill rate and a regime read.

How to Trade the Gap-volatility Relation?

• Share above the threshold: gaps carry more variance than the sessions between them; range-based estimates understate risk and overnight exposure deserves scaling, with alerts both ways.
• Stressed regime: short-run gaps at 1.5x their baseline or more while recent significant gaps mostly go unfilled — escalation, with a dedicated alert.
• Quiet regime: a gap expansion ratio at or below 0.75 marks contracted gaps.
• Large Opening Gap alert: a significant gap at least twice the baseline mean absolute gap.

Built for daily and higher charts; the dashboard warns when run intraday.

Gap-volatility Relation Settings

• Estimation Window (default 20): sessions behind the two sample variances; longer windows steady the share but react slower.
• Periods Per Year (default 252): annualization for the volatility readouts.
• High Share Threshold % (default 50): the dashed reference where gaps dominate.
• Minimum Gap Size % (default 0.2), Fill Window (Sessions) (default 1) and Gap Sample Size (default 10): the significant-gap definition and its statistics.
• Short Gap Window (default 10), Baseline Gap Window (default 63), Expansion Ratio (default 1.5), Contraction Ratio (default 0.75), Unfilled Threshold % (default 50) and Large Gap Multiple (default 2): regime and alert triggers.
• Show Dashboard (default enabled) plus toggles for component volatilities, gap marks and the regime highlight (all default disabled).

Frequently Asked Questions

How is this different from Historical Volatility?

Historical Volatility compresses everything into one close-to-close number. This build keeps overnight and intraday risk apart and adds gap statistics no single figure carries.

Why does the overnight share matter for sizing?

When the share is high, most of the risk lands between sessions, where stops cannot act. Traders scale overnight exposure to gap risk and lean on close-inclusive volatility estimates there.

What flips the regime read to Stressed?

The gap expansion ratio at or above the Expansion Ratio input together with a fill rate at or below the Unfilled Threshold %. Larger gaps that extend rather than fill are the signature the read is built on.