Implied vs. Realized Volatility

VIX vs. what actually happened (S&P 500 realized volatility (20-day annualized)).
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Realized Volatility (20d, ann.)
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S&P 500 actual price swings
Implied Volatility (VIX)
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Options-priced 30-day expectation
Volatility Risk Premium
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Implied minus realized

Last 6 months

Realized volatility measures how much the S&P 500 has actually moved over the trailing 20 trading days (the standard deviation of daily log returns, annualized). Implied volatility (VIX) measures what options are pricing in for the next 30 days, derived from the premiums that options traders are willing to pay.

Implied and realized volatility usually move together, but the gap between them (volatility risk premium, VRP) is rarely zero. Implied volatility tends to sit above realized. Option sellers demand compensation for the risk they're taking on, so options are on average priced relatively higher than what volatility actually turns out to be. A widening VRP can be due to rising hedging demand or anticipation of an upcoming event (earnings, Fed meetings, etc.). A falling or negative VRP (implied vol trading below realized) is unusual (typically after a volatility spike).