Implied vs. realized volatility
Comparing implied with realized volatility asks whether options are priced for more movement than the underlying is delivering; IV usually sits above RV, and that gap, the volatility risk premium, is what option sellers try to collect.
Two numbers, one unit
Implied volatility is a price: what the options market charges today for the moves it expects. Realized volatility is a measurement: how much the underlying actually moved. Both are annualized percentages, so their difference, IV − RV, is a direct reading of whether options are rich or cheap relative to recent movement.
Why IV usually sits above RV
Most of the time, implied volatility is a few points above the volatility that follows. That gap is the volatility risk premium, and it is closer to an insurance premium than to a mispricing:
- buyers of puts pay for protection against crashes, and are willing to overpay on average for it;
- sellers take on negative gamma, sudden jumps and the risk of a liquidation on a fast move, and demand to be paid for it;
- crypto returns have fat tails, so the rare very large move is part of what the premium covers.
How a seller collects it
Take the 30-day $100,000 straddle at 50% IV, with BTC at $100,000: $11,428. Sold, it has gamma −0.0000555 and theta +$190 a day. If the seller hedges delta every day, each day's result is about theta plus ½ × gamma × (that day's move)². The two cancel when the move is √(2 × 190 / 0.0000555) ≈ $2,617, which is 2.62% of BTC, exactly 50% / √365. Each day BTC moves less than about 2.6%, the hedged short straddle gains; each day it moves more, it loses.
If the next month realizes 40%, a typical day is a 2.09% move. The same straddle priced at 40% is worth $9,145, so the seller's edge is about $11,428 − $9,145 ≈ $2,280 before spreads and fees: roughly its vega of $228 times the ten-point gap. That is the premium being collected, on average, if realized volatility really comes in at 40%.
When it fails
The gains are small and steady; the losses are rare and large. In a crash, realized volatility jumps far above what was implied, and implied volatility rises at the same time, so a short option loses on gamma and on vega at once, just as margin requirements rise. A short straddle sized only for ordinary days is how a positive average turns into a liquidation. Buyers of a long straddle pay the premium most of the time and are paid back in those episodes.
Compare like with like
The comparison is only meaningful over the same horizon. A 7-day RV against a 90-day IV mixes a quiet week with three months of possible events. Listed expiries rarely sit exactly 7 or 30 days out, so BOSS interpolates ATM IV to a constant horizon, linearly in total variance (IV² × time) between the two expiries around it.
For example, with a 23-day expiry at 48% and a 51-day one at 52%: total variances are 0.48² × 23 = 5.30 and 0.52² × 51 = 13.79; at 30 days, 5.30 + (13.79 − 5.30) × 7/28 = 7.42; and √(7.42 / 30) = 49.7%. Interpolating the IVs themselves would have given 49.0%.
On the Dashboard, the headline compares ATM IV 7d with each venue's RV 7d, so both sides cover the same seven days, and the history chart sets ATM IV 30d against Deribit's RV 30d. One more caution: today's IV is a price for the next 30 days, while today's RV measured the last 30. Whether the premium was really earned is decided by the RV that comes after.
Live on BOSS
Today's at-the-money IV against realized volatility on every venue BOSS follows, and ATM IV 30d against RV 30d over time. Where the IV line sits above the RV line, options were priced for more movement than followed.
| Exchange | ATM IV 7d | ATM IV 30d | RV 7d? | IV 7d − RV 7d | 25Δ put IV | 25Δ call IV |
|---|---|---|---|---|---|---|
| Bybit | 32.7% | 34.6% | 15.4% | +17.3 | 36.6% | 34.6% |
| Deribit | 32.9% | 34.5% | 15.6% | +17.3 | 36.1% | 34.5% |
| OKX | 32.4% | 34.3% | 15.7% | +16.7 | 36.2% | 34.6% |
ATM implied volatility (30 days) vs realized (30 days)
ATM IV, 30 days Realized, 30 days
Common mistakes
- Treating IV above RV as free money. The premium pays for rare, large losses that a short-options book will eventually meet.
- Comparing IV and RV over different horizons.
- Judging the trade by the RV of the past window: the outcome depends on the volatility that comes after the options were sold.
- Sizing a short-volatility position for ordinary days instead of for the margin a sudden spike would require.
Where this shows up on BOSS
Educational content, not investment advice. See the disclaimer.