Volatility & advanced strategies
What is the Implied Volatility Risk Premium (IVRP) and how is it systematically harvested?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The Implied Volatility Risk Premium is the historical tendency for options' implied volatility to exceed subsequently realized volatility, systematically harvested by selling options or variance via strategies like covered calls or short strangles.
How it works
Sellers collect premium reflecting compensation for bearing tail risk; academic studies show index options average IV above realized vol over long horizons, creating a persistent but not riskless edge.
An example
Cboe's PUT and BXM indexes track systematic short put/covered call strategies designed to harvest this premium on the S&P 500.
Risk & limitations
The premium can reverse violently during volatility spikes, as in 2018's Volmageddon, wiping out years of accumulated gains from short-volatility strategies.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.