BackQuant Glossary
Volatility Risk Premium
The persistent gap between implied volatility and subsequently realized volatility. Implied tends to overshoot realized over long horizons, which is why systematic option-selling strategies have positive expected value. The premium can vanish or invert in stress regimes.
Related terms
Long
A position that profits when price rises. Buying spot, going long a perp, owning a call, or being short a put are all long positions. Opposite of short.
Premium
The price of an option, paid by the buyer to the seller. Premium consists of intrinsic value plus time value. In a separate sense, basis premium refers to futures or perp prices trading above spot.
Realized Volatility
The volatility actually observed in the underlying over a window of time, calculated from historical price changes. The persistent gap between realized and implied volatility is the volatility risk premium - the structural reason selling options has positive expected value.
Regime
The character of price action over a period: trending or ranging, high-vol or low-vol, positive or negative gamma. Regime classification is the single most important input to strategy selection. A signal that works in one regime often fails in another.
Vanna
A second-order Greek measuring how delta changes with implied volatility. Vanna becomes important when IV is shifting fast (during news, vol spikes, or vol crush). Vanna flow is a recognized cause of post-event drift in spot.
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