We recently introduced a new metric, Normalized Volatility Risk Premium (NVRP), to the Option Alpha platform for traders. It's based on new tastytrade research recently discussed on using NVRP as a quantitative way traders can identify discrepancies between Implied Volatility (IV) and Realized Volatility (RV) for a symbol. It measures the premium (or discount) the market is pricing into an option's expected future volatility compared to its historical volatility.
A high NVRP signals an opportunity to sell premium, leveraging the market's tendency to overestimate future volatility. We can use this premium (or discount) to make decisions about which option prices might be relatively high (or low) in the current market. This video provides a visual way to think about NVRP, shows you how to use it to find Trade Ideas, and how to automatically screen for positive NVRP inside your bots right now.
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