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How to Read the Cross Asset Volatility Quadrants – Options Buying vs. Options Selling
Another important model to spot Volatility Premium across assets is our Cross Asset Volatility Tracker.
This scatter plot compares implied volatility (IV) and historical volatility (HV) percentiles for multiple assets over the past three months.
X-axis (3 Month HV Percentile): Shows where realized volatility sits compared to its past three months. Higher values = markets have actually been more volatile recently.
Y-axis (3 Month IV Percentile): Shows where implied volatility sits relative to its past three months. Higher values = options markets are pricing in more expected volatility.
Cross Asset Volatility Tracker 5
How to Read the Quadrants
The chart is divided into two colored zones by the diagonal line:
Red Zone (Above the Diagonal)
IV is running ahead of HV → This signals that options may be expensive and favors a selling options bias.
Example: VIX, GLD, XLC, and TLT are in this zone—where the 3-month percentile of Implied Volatility is above that of Historical Volatility. In other words, as of today, Implied Volatility occupies a higher portion of its range than Historical Volatility.
To illustrate:
Suppose GLD’s 3-month Implied Volatility sits at the 75th percentile of its own range, while its 3-month Historical Volatility is only at the 45th percentile.
For a trader, this can signal that options may be overpriced relative to actual market movement. In this case, selling premium could be attractive, since implied volatility suggests the market will move more than it realistically has been, allowing traders to capture elevated option prices.
Green Zone (Below the Diagonal)
HV is ahead of IV → This suggests that options may be cheap and favors a buying options bias.
Example: IWM, XLP, QQQ, and XBI are in this zone—where the 3-month percentile of Historical Volatility is above that of Implied Volatility. In other words, as of today, Historical Volatility sits in a higher portion of its range than Implied Volatility.
To put this in perspective:
Suppose over the last 3 months, Historical Volatility (HV) for QQQ is at the 70th percentile of its own range, while Implied Volatility (IV) is only at the 40th percentile. This means realized market moves are relatively large, but option prices (which reflect IV) are not keeping up.
For a trader, this can signal that options may be underpriced relative to actual market movement. For instance, buying a straddle or strangle could be attractive, since past realized swings suggest the market has the potential to move more than what is currently being priced in.
Why This Matters
This model allows traders to quickly see where volatility is being overpriced vs underpriced across assets:
Equity Indices (SPX, QQQ, IWM, DIA): Spot divergences in how volatility is being priced across major benchmarks.
Sectors (XLK, XLF, XLE, etc.): Identify rotations — e.g., tech may be pricing in higher fear than staples or vice versa.
Macro Assets (GLD, TLT, USO, SLV): Gauge risk sentiment in gold, bonds, and commodities, which often move differently than equities.
By comparing implied vs realized volatility directly, the Cross Asset Volatility Tracker helps traders decide whether the options market is overpaying for protection (red zone → selling bias) or underpricing actual risk (green zone → buying bias). It’s a simple, visual way to align strategy with volatility mispricing across the market.
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