Volatility Risk Premium (VRP) 1.0
Apr 1, 2022
The Volatility Risk Premium (VRP) 1.0 indicator calculates the one-month Volatility Risk Premium for the S&P 500 and Nasdaq-100, providing traders with a quantitative measure of market sentiment and hedging activity.
Usage
The Volatility Risk Premium represents the difference between Implied Volatility (IV) and Realized Volatility (RV). It reflects the cost market participants are willing to pay for portfolio insurance.
- Normal Range: When the VRP line fluctuates within the "normalized" range (one-year moving average +/- a user-defined percentage), market uncertainty is considered standard.
- High Premium: A VRP above the normalized range indicates that investors are paying a significant premium for options, signaling heightened uncertainty or fear of a market crash.
- Low/Positive Premium: A VRP below the normalized range but above the zero line suggests that investors perceive decreasing risks, though they are still paying a small premium for protection.
- Complacency: A negative VRP (below the zero line) indicates market complacency, where participants expect future volatility to be lower than the volatility realized in the recent past.
Details
The indicator utilizes 30-day Implied Volatility (IV) derived from the VIX (for SPX) and VXN (for NDX) indices, compared against 21-day Realized Volatility (RV). Realized Volatility is calculated as the annualized standard deviation of logarithmic returns based on daily closing prices.
The VRP is expressed as a percentage: 100 * (IV - RV) / RV.
Note that because volatility index data from the CBOE may be delayed on certain platforms, the calculation might reflect these delays. The indicator is specifically calibrated for use on the daily timeframe.
Settings
- S&P500: Toggles the visibility of the VRP calculation for the S&P 500 index.
- Nasdaq 100: Toggles the visibility of the VRP calculation for the Nasdaq 100 index.
- Normalized range %: Sets the percentage bandwidth around the 1-year Simple Moving Average used to define the "normal" volatility environment.
FAQ
How do I use this on different timeframes?
This specific indicator is calibrated for the daily timeframe to match the 30-day IV and 21-day RV calculation logic.
Why is the chart blank when I first add it?
You must enter the settings menu and select at least one index (S&P 500 or Nasdaq 100) to begin plotting the VRP data.
How can I access Volatility Risk Premium?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
Trading & investing are risky and many will lose money in connection with trading and investing activities. All content on this site is not intended to, and should not be, construed as financial advice. Decisions to buy, sell, hold or trade in securities, commodities and other investments involve risk and are best made based on the advice of qualified financial professionals. Past performance does not guarantee future results.
Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, including, but not limited to, lack of liquidity. Simulated trading programs in general are designed with the benefit of hindsight, and are based on historical information. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.
As a provider of technical analysis tools and strategies, we do not have access to the personal trading accounts or brokerage statements of our customers. As a result, we have no reason to believe our customers perform better or worse than traders as a whole based on any content, tool, or platform feature we provide.
Charts used on this site are by TradingView in which the majority of our technical indicators are built on. TradingView® is a registered trademark of TradingView, Inc. www.TradingView.com TradingView® has no affiliation with the owner, developer, or provider of the Services described herein.
Market data is provided by CBOE, CME Group, BarChart, Massive, CoinAPI. Select U.S. equities data is provided through Massive. CBOE BZX real-time U.S. equities data is licensed from CBOE and provided through BarChart. Real-time futures data is licensed from CME Group and provided through BarChart. Select cryptocurrency data, including major coins, is provided through CoinAPI. All data is provided “as is” and should be verified independently for trading purposes.
This does not represent our full Disclaimer. Please read our full disclaimer.
© 2026 LuxAlgo Global, LLC.