@mikebuck
A persistent gap where IV substantially exceeds realized volatility signals elevated risk premia or demand for option protection—markets are insuring against potential tail risk, and option sellers earn compensation. If IV is below realized volatility, it implies underpriced uncertainty and potential overstretched positioning. The IV–RV spread can forecast future volatility mean-reversion: wide positive spreads often compress as realized vol rises or IV falls when uncertainty resolves. Traders use the spread to time volatility-selling strategies or buy protection. Interpret the gap alongside macro event calendars and liquidity conditions; structural increases in IV–RV during low-liquidity regimes can presage big moves, while persistent spreads during quiet markets reflect risk aversion rather than imminent turbulence.
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