Volatility comparison tool

Put implied volatility beside realised volatility over the same window, and read the premium between them.

Quick answer: The volatility comparison tool places an implied volatility beside a realised volatility over a matched window and reports the gap between them — the volatility risk premium — in volatility points, as a ratio, and as the difference in the price range each implies.

Volatility Comparison Tool

Match the windows. A 30-day implied volatility against a 10-day realised volatility compares two different periods and blames the difference on the option market.

Figures are per unit of the underlying and exclude brokerage, STT, exchange charges, stamp duty and GST.

How this calculator works

The only comparison that speaks to 'expensive'

IV Rank tells you whether an option is expensive relative to its own history. It does not tell you whether it is expensive relative to what the underlying is actually doing. That question requires setting implied volatility beside realised volatility over a comparable window. An implied volatility of 18% against a realised volatility of 22% describes a cheap option, however high its IV Rank.

Match the windows, or measure nothing

A 30-day implied volatility describes the next thirty days. A 10-day realised volatility describes the last ten. Subtracting one from the other and calling the result a premium is comparing two disjoint periods and attributing the difference to the option market. If you must compare, use matched tenors — and understand that even then, one number is forward-looking and the other is not.

The premium is real, small, and dangerous

Across almost every liquid options market that has been studied, implied volatility exceeds the volatility that subsequently arrives, most of the time, by a couple of points. That is the volatility risk premium and it is why option sellers are compensated. The shape of the errors is what matters: in calm markets implied volatility overshoots by a little, repeatedly, which accumulates and looks like an edge; before a shock it undershoots enormously, once. The average is positive and the distribution is brutal.

The honest version of the question has no answer yet

'Is this option expensive?' means 'does its implied volatility exceed the volatility the underlying will realise between now and expiry?'. That realised volatility does not exist yet. Every comparison you can actually make substitutes a past realised volatility for a future one, and the substitution is exactly where the risk lives.

The volatility risk premium

VRP = σ_implied − σ_realised

Quoted in volatility points. The ratio σ_implied ÷ σ_realised is also used and is scale-free, which makes it comparable across underlyings in a way the difference is not.

VRPVolatility risk premium, in annualised volatility points. Typically +1 to +4 on liquid index options.
σ_impliedImplied volatility over the window, from the option chain.
σ_realisedRealised volatility over a window of the same length. Strictly, it should be the volatility realised AFTER the option was bought, which is not knowable in advance.

Using it, step by step

Enter the at-the-money implied volatility for the expiry you care about.
Enter the realised volatility of the underlying over a window of the SAME length. If your option has 30 days, use a 30-day realised volatility, not a 20-day one.
Enter the number of days and the spot to see what each volatility implies as a price range.
Read the premium in points and as a ratio. A ratio near 1.0 means the option market and the underlying agree.
Before concluding anything, check the term structure and whether a scheduled event sits inside the option's life. A rich premium that is entirely event premium is not a premium — it is a price for a known risk.

Worked example

NIFTY

NIFTY's 30-day at-the-money implied volatility is 13.0% and its trailing 30-day realised volatility is 9.4%. The premium is 3.6 volatility points, a ratio of 1.38. On a spot of 24,000 over 30 days, the option market is pricing a one-standard-deviation move of 24,000 × 0.13 × √(30/365) ≈ 894 points, while the underlying has been delivering movement consistent with about 647 points. The option is dear by roughly 247 points of expected movement. That is the entire case for selling it — and it is not sufficient, because the 3.6 points is compensation for the possibility that the next thirty days look nothing like the last thirty, and that possibility is realised rarely and completely.

Assumptions and limitations

What this calculator assumes. Every number it produces is only as good as the assumptions below, and each of them is wrong to some degree in a real market. The output is a model's opinion, not a measurement.

The windows are matched in length. If they are not, the number produced is not a premium and has no interpretation.
Realised volatility over the PAST window is being used as a stand-in for realised volatility over the FUTURE window. That substitution is the entire risk of the trade the number is tempting you toward.
Both figures are annualised on the same convention. Mixing a 252-day annualisation with a 365-day one shifts the premium by roughly 20% of the realised figure.
The implied volatility is the at-the-money value. The premium is not uniform across strikes — it is concentrated in the wings, particularly out-of-the-money puts, which the at-the-money figure does not see.
A scheduled event inside the option's life inflates implied volatility for a correct reason. The tool cannot see the calendar, and will report that event premium as though it were a risk premium.

Common mistakes

Comparing a 30-day implied volatility with a 10-day historical volatility, which compares two different periods and calls the difference an edge.
Concluding from a positive premium that selling options is profitable. The premium is compensation for a risk that is realised rarely and completely.
Ignoring a scheduled event inside the option's remaining life. The implied volatility is high because a known uncertain day sits inside it, not because the market has mispriced anything.
Using at-the-money implied volatility to judge a position in the wings, where the premium is much larger and the risk quite different.
Treating a ratio below 1.0 as a signal to buy options. It means realised volatility has been exceeding implied — which has already happened, and says nothing about what happens next.

Frequently asked questions

What is the volatility risk premium?

It is the tendency for implied volatility to exceed the volatility that the underlying subsequently realises, typically by one to four volatility points on liquid index options. It is compensation for underwriting the risk of a move that has not happened yet.

How do I compare implied and realised volatility?

Use matched windows: a 30-day implied volatility against a 30-day realised volatility. Subtract to get the premium in points, or divide to get a scale-free ratio. Comparing mismatched windows produces a number with no interpretation.

Does a positive volatility risk premium mean selling options is profitable?

No. The premium is small, positive and frequent; the losses are large, negative and rare. A positive average across a period is entirely consistent with a strategy that loses more in one week than it made in a year.

Why does implied volatility usually exceed realised volatility?

Two explanations are advanced and practitioners genuinely disagree about the weights: it is fair compensation for bearing crash risk and for the capital a seller must post, or it is a behavioural anomaly caused by persistent over-demand for protection. Probably both are partly true.

When does implied volatility fall below realised volatility?

In the middle of a shock, when the market is moving more violently than anyone thought to charge for. That inversion is rare and is precisely the moment short-volatility positions lose money.

Should I use the trailing realised volatility or the future one?

The right comparison uses the volatility realised AFTER the option is bought, which is unknowable. Everything you can compute substitutes the past for the future, and that substitution is where all the risk lives.

Is the premium the same across all strikes?

No. It is concentrated in the wings, especially out-of-the-money puts, where hedging demand is persistent. The at-the-money premium understates the premium available in the put wing, and understates the risk of selling it too.

Does the tool account for scheduled events?

No, and no such tool can. If an RBI policy meeting or a budget sits inside the option's remaining life, the implied volatility is correctly pricing a day that has not happened. The premium the tool reports will be event premium, not risk premium.

Voice search & related questions

Is implied volatility higher than realised volatility?

Usually, on liquid index options, by about one to four volatility points. That gap is the volatility risk premium, and it inverts during a shock.

How do I know if an option is expensive?

Compare its implied volatility with the realised volatility of the underlying over the same window length, and check whether a scheduled event falls before expiry. If it does, the option is not expensive — it is pricing a known uncertain day.

What does it mean when IV is below HV?

It means the market is currently moving more than the option chain is charging for. It is rare, it happens in the middle of shocks, and it is when short-volatility positions lose the most.

Last reviewed 10 July 2026. Educational content only — not investment advice.