This version of the VRP strategy was proposed by Trading the Odds, which has now ceased to exist.

The general logic of VRP strategies – to estimate the size of the IV premium over historical volatility – is preserved here. Then, depending on the dynamics of the premium (whether it is overstated relative to the average or not), a decision is made about entering positions. However, there are some specifics.

This is brute force verision of DDN VRP strategy. The general principles of the strategy remain the same:

Compare the historical volatility of SPY with the VIX index. The resulting difference (VRP) will represent the premium paid by option buyers for hedging. Average the VRP value over several days to smooth the signal.

This strategy falls under the VRP (Volatility Risk Premium) strategies class. Their main principle is to estimate the additional premium that option buyers pay for risk hedging. Most often, the comparison is between implied volatility and historical volatility or some model.