Flat skew

[ironchef]

Time to take some money off the table, get out of some long calls.

 

[ironchef]

I think the article is reading too deeply into what is mostly a flows-driven story. Part of the the story is the level of vols, people are hedging closer to the money and people are substituting calls for stock. Part of the story is driven by the structured notes (specifically autocallables - as we are rallying, they are covering the short vega hedges). Part of the story is due to suppression of volatility (in local vol setting, one can think of skew as the "gamma of vol" and with vol being suppressed, demand for that convexity is low too).

As a side note, the skew realizes much better in RUT/IMW or NDX/QQQ, so the trade to do is to sell SPX skew and buy IWM/QQQ skew.

Question:

What general expiration dates would you trade, short, intermediate or long dates, and why?

 

[Overnight]

https://archive.ph/q4ikT

I have been off and on the site since you said last year that you were leaving the site forever because of personal issues, but I kept the faith and used Spock logic, and knew you would be back And here you are. I win!

 

[Slow Learning Elf]

Question:

What general expiration dates would you trade, short, intermediate or long dates, and why?

I am not sure what the trade you’re proposing so it’s hard to suggest a structure

 

[ironchef]

I am not sure what the trade you’re proposing so it’s hard to suggest a structure

This: so the trade to do is to sell SPX skew and buy IWM/QQQ skew.

Thank you for your time.

 

[Slow Learning Elf]

This: so the trade to do is to sell SPX skew and buy IWM/QQQ skew.

Thank you for your time.

Ah, that. It’s a play for implied volatility reset, so longer-dated options are better for it (your pnl is proportional to the gross vega of the four legs). The real question is what ratios and strikes, though

 

[ironchef]

Ah, that. It’s a pay for implied volatility reset, so longer-dated options are better for it (your pnl is proportional to the gross vega of the four legs). The real question is what ratios and strikes, though

Thanks.

Can't ask you to do all the work. I will work out the ratios and strikes as my homework.