Implied volatility is, on average, higher than realized volatility. This gap (the variance risk premium) is harvested by selling options. A practical walk-through of its mechanism, concrete rules, expectancy, and tail risk.
What this method harvests is not direction. It is the insurance premium.
The implied volatility (IV) priced into options is, on average, higher than the realized volatility (RV) that subsequently shows up. This gap is called the variance risk premium (VRP), a structural distortion observed again and again across many markets and time periods.
The option seller harvests this distortion. They collect the premium that buyers overpay, and if the market does not move as much as the price implied, that difference is left over as profit.
Short strangles, covered calls, put selling. None of these are about "getting the direction right." They are tools for reaping the bias that the market's estimate of movement tends to exceed the actual movement.
Let me draw a clear line here. Where volatility trading aims to capture the direction of volatility (whether it expands or contracts), the subject of this article is the harvesting of the premium itself. The former earns from the movement of volatility; the latter earns from the very fact that volatility is overpriced from the buyer's point of view. They look alike but are not the same.
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TVC:VIX
The Esoteric Volumes · By Application
Capital, discipline, psychology. The chapters that sit behind technique describe the bone-work that keeps an operator in the market for years. Access requires a written application, reviewed by hand.