Variance Risk Premium Long
In plain terms
When the variance risk premium (the gap between implied vol and recent realized vol) is in the top 20% of its yearly distribution, equities tend to rally over the next 2-4 weeks as the overpriced hedges unwind.
How it works
Variance Risk Premium (VRP) = (VIX/100)^2 minus trailing 30d realized variance of SPY. When VRP is in the top quintile of trailing 252d own-history, investors are paying an unusually high premium for downside protection — historically a +6-10%/yr forward equity-return signal as the implied-vol overpricing converges.
Data dependencies
- Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
- Vix prices
A data feed this strategy reads, refreshed on its normal schedule.
- Spy prices
A data feed this strategy reads, refreshed on its normal schedule.
Expected edge
- Reported return
- +6-10%/yr conditional
- Tested over
- T+1 to T+21d
+6-10%/yr on long equity conditional on top-quintile VRP (Drechsler-Yaron 2011).
Example tickers where this is likely to fire
Illustrative only, the signal fires based on the live data, not a fixed list.
Related families
Compare the market's implied volatility (VIX) with how much the S&P 500 actually moved over the past month. When implied exceeds realized (investors are overpaying for insurance) and near-term fear is below longer-term fear (VIX below VIX3M), stay long; otherwise go to cash.
When the 30-day VIX is meaningfully below the 90-day VIX (steep contango, ratio < 0.95), the equity market is in a calm risk-on regime. Go long SPY or high-beta names for 2-4 weeks.
Front-month VIX cheap vs 3-month (contango) means calm — SPY drifts up. When it inverts (backwardation), panic mode.
Explore Variance Risk Premium Long on alphactor.ai
See which tickers this family is currently firing on, with live signals and rankings.