The implied volatility premium is the gap between option-implied future volatility and subsequently realised volatility — the price the market charges for bearing uncertainty. Positive on average, it compensates option sellers for tail risk and reflects demand for insurance against large adverse moves in the underlying.
Implied volatility is backed out of option prices under a risk-neutral measure; the premium is the systematic wedge by which it exceeds the realised volatility that follows. Sellers of options harvest it as carry; spikes in the premium signal hedging demand or dislocation, as when crude option markets price elevated geopolitical or supply uncertainty above what spot moves later confirm.
In 2025–2026 crude implied vol premia have widened intermittently on Middle East and Russia–Ukraine supply risk, signalling that energy options price tail scenarios above realised spot moves — a read on geopolitical fear distinct from the flat physical tape.
In early 2020, S&P 500 one-month implied volatility (VIX) spiked toward 80 in March as the pandemic hit, while subsequently realised volatility, though high, lagged the implied peak — leaving option sellers a large positive volatility risk premium once panic faded. Conversely, in calm 2017 the VRP compressed as implieds and realised both sat near record lows.
VRP ≈ implied volatility − realised volatility (option-implied, risk-neutral) vs (realised, physical)