Systematic signals for when volatility is due to revert to its long-run average
Volatility is mean-reverting by nature — periods of extreme fear or extreme calm are always temporary. The Mean Reversion Engine quantifies exactly how far current volatility has deviated from its long-run equilibrium and estimates the probability and timeline for reversion. This creates high-conviction trade signals for both premium sellers (when IV is elevated) and volatility buyers (when IV is suppressed).
Uses the Ornstein-Uhlenbeck stochastic process — the standard academic model for mean-reverting processes — to estimate the speed and magnitude of IV reversion for each ticker.
For any current IV level, shows the probability that IV will revert to within 10%, 20%, or 30% of its long-run mean within 30, 60, or 90 days.
Calculates the statistical half-life of the current IV deviation — the expected time for IV to close half the gap to its mean. Critical for selecting the right expiration.
Classifies the current volatility regime (low, normal, elevated, extreme) using a Hidden Markov Model, and adjusts all signals for the current regime.
Overlays macro volatility drivers (VIX term structure, credit spreads, macro event calendar) to distinguish regime-driven IV from idiosyncratic spikes.
Aggregates mean-reversion signals across your entire watchlist to identify when broad portfolio volatility is at an extreme — the ideal time to add or reduce premium-selling exposure.
The Ornstein-Uhlenbeck model is calibrated to the last 3 years of daily IV data for each stock. This gives three parameters: the long-run mean (theta), the speed of mean reversion (kappa), and the volatility of volatility (sigma).
The deviation is expressed as a standardized score: how many OU standard deviations the current IV sits above or below the estimated long-run mean. This is more precise than a simple Z-score because it accounts for the mean-reverting dynamics of the process.
Using the kappa parameter (speed of mean reversion), the engine calculates the expected half-life: the time for IV to close half the gap to its mean. A half-life of 15 days suggests a 30-45 DTE trade; a half-life of 45 days suggests a longer-dated position.
If the macro environment is in a high-volatility regime (VIX above 25, credit spreads widening), the engine reduces confidence in reversion signals because regime persistence can override mean reversion. Signals are color-coded by confidence level.
The final output is a ranked list of tickers where mean reversion is both statistically likely and macro-consistent, with the suggested strategy, expiration, and position size.
Volatility Anomaly — Platform Overview
A complete walkthrough of the Volatility Anomaly platform: the screener, backtester, research library, and all Professional modules.
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Systematic signals for when volatility is due to revert to its long-run average
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