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Volatility Risk Premium

Updated dailyData needs: medium

In plain terms

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.

How it works

Variance risk premium: VRP = IV^2 - RV^2, where IV^2 is the squared VIX (risk-neutral expected variance of the S&P 500) and RV^2 is trailing 21-day realized variance of SPY daily returns, annualized to the same units (daily-close proxy for the paper's 5-minute RV). Positive VRP predicts positive equity returns (BTZ 2009). Canonical rule: long when VRP > 0 AND VIX < VIX3M (term structure in contango; backwardation signals stress). Sweep variants: raw vs 5-day majority smoothing, a paper-faithful VRP-only rule, and a legacy contango-only proxy.

Live results

8 times picked on its own · 225 times inside a blend (135 beat the stock) · updated 2026-07-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 225 such blended picks (135 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

Vix history
A data feed this strategy reads, refreshed on its normal schedule.
Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.

Expected edge

Reported return: ~6%/yr unconditional
Reported Sharpe: 1.0 conditional (Bollerslev-Tauchen-Zhou 2009)
Tested over: 1990-2007

~6%/yr unconditional, 1.0 Sharpe conditional (Bollerslev-Tauchen-Zhou 2009)

Example tickers where this is likely to fire

SPY QQQ

Illustrative only, the signal fires based on the live data, not a fixed list.

Related families

Regime OverlayEconomy & Policy

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Uses Fed-funds, term spread, and credit spread (FRED data) to flag risk-off vs risk-on regimes and scale exposure accordingly.

Explore Volatility Risk Premium on alphactor.ai

See which tickers this family is currently firing on, with live signals and rankings.

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