Price & Market BehaviorExtended setlive in productionNew

option-implied variance asymmetry

Updated dailyData needs: highlong onlyshort onlylong short

2019

Huang, T. & Li, J. (2019). Option-Implied Variance Asymmetry and the Cross-Section of Stock Returns. Journal of Financial Markets.

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In plain terms

When the options market is pricing in more room for the stock to rise than to crash, the stock tends to go up afterward.

How it works

The risk-neutral variance asymmetry (upside risk-neutral semivariance minus downside semivariance, extracted from OTM option prices) positively predicts the cross-section of returns and outperforms plain risk-neutral skewness. A high upside-minus-downside implied variance means the option market prices relatively more upside than crash risk, which precedes higher realized returns.

Live results

14 times picked on its own · 14 times inside a blend (13 beat the stock) · updated 2026-06-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 14 such blended picks (13 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

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Data dependencies

Options surface daily
End-of-day OPRA option chains used by IV-skew family.
Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.

Expected edge

Earns the documented ~0.90%/month hedge return from names whose option market prices in more upside than downside variance.

Related families

option-implied kurtosis butterflyPrice & Market Behavior

When options imply the stock could make a big jump in either direction (fat tails), it tends to earn higher returns than when the option market expects a tame, narrow range.

risk-neutral skewness shortPrice & Market Behavior

Stocks whose options make them look like lottery tickets with big upside tend to disappoint, so this strategy bets against them.

Explore option-implied variance asymmetry on alphactor.ai

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