there's a variety of reasons skew leans one way or the other... it gets complicated fast...
as to the collars, yes.. MMs do it, traders and investors do it, HFTs do it, hedge funds do it... also, it doesn't have to be all collars... some people are buying puts, some people are selling covered calls, some are doing both... there's also conversion and reversal, where you place skew-based trades then convert them into arbitrage trades if they make a strong enough move in your direction... you buy 100 shares of SPY and buy a long put... stock moves up far enough and you can sell a call to synthetically close the position and lock in the profit - basically legging into a collar put-first... it's even "easier" when you're an MM and you get to play the bid-ask spread...
typically, if everyone is long the stock you'll have put skew and if everyone is short the stock you'll have call skew... call skew in HTBs has a lot to do with borrowing fees for short positions, but that's it's own independent topic entirely...
skew is one of those things that people are usually taught to trade around... e.g., if you're running an iron condor, you have to set your strikes on one spread farther away than your other other spread to maintain delta neutrality, because of the skew...
the thing is, that's not necessarily the best way to take advantage of it... also, sometimes the skew isn't put or call skewed, it's neutral... sometimes neutral skew, or even call skew, appears because of an earnings date, or, often, markets have a strange way of predicting the future... as an example, in the weeks prior to growth/tech pulling back and commodities/energy sectors rising, call skew started appearing in places it rarely does... indexes/sector ETFs rarely ever have call skew, for instance, but it was showing up in XLE around the 50/54 strikes for june... consumer defensives also started showing neutral and/or call skew through may, june, and july... i have a trading friend who noticed call skew in IWM at the bottom of the corona crash...
you can't always say 100% for sure what's causing it with call skew, but with put skew 9/10 times it's investors and institutions hedging long positions... most professional investors that aren't specifically trading volatility are using options as a hedge against long/short stock positions, not as standalone trades in and of themselves...
you can also think of skew in terms of a volatility curve... in a put skew, the expectation is either a grind up or a crash down... that's what indexes do, right?
in call skew, the expectation is either a crash up or grind down... this occurs in HTBs specifically because the short interest is so high that when a run up occurs its easy to create a mini short squeeze - thus, when HTBs (i.e., meme stonks and high fliers) pump they tend to go parabolic, then just bleed profusely for however long until some new catalyst makes them jump... those parabolic run ups are in large part due to shorts having to cover on the run up...
go look at the chart on MVIS... prime example of cyclic short squeezes, and MVIS has some of the highest call skew in the market + some of the highest short interest in the market as well... often times you can see these cyclic short squeezes happening just before major options expirations as well!
as to the collars, yes.. MMs do it, traders and investors do it, HFTs do it, hedge funds do it... also, it doesn't have to be all collars... some people are buying puts, some people are selling covered calls, some are doing both... there's also conversion and reversal, where you place skew-based trades then convert them into arbitrage trades if they make a strong enough move in your direction... you buy 100 shares of SPY and buy a long put... stock moves up far enough and you can sell a call to synthetically close the position and lock in the profit - basically legging into a collar put-first... it's even "easier" when you're an MM and you get to play the bid-ask spread...
typically, if everyone is long the stock you'll have put skew and if everyone is short the stock you'll have call skew... call skew in HTBs has a lot to do with borrowing fees for short positions, but that's it's own independent topic entirely...
skew is one of those things that people are usually taught to trade around... e.g., if you're running an iron condor, you have to set your strikes on one spread farther away than your other other spread to maintain delta neutrality, because of the skew...
the thing is, that's not necessarily the best way to take advantage of it... also, sometimes the skew isn't put or call skewed, it's neutral... sometimes neutral skew, or even call skew, appears because of an earnings date, or, often, markets have a strange way of predicting the future... as an example, in the weeks prior to growth/tech pulling back and commodities/energy sectors rising, call skew started appearing in places it rarely does... indexes/sector ETFs rarely ever have call skew, for instance, but it was showing up in XLE around the 50/54 strikes for june... consumer defensives also started showing neutral and/or call skew through may, june, and july... i have a trading friend who noticed call skew in IWM at the bottom of the corona crash...
you can't always say 100% for sure what's causing it with call skew, but with put skew 9/10 times it's investors and institutions hedging long positions... most professional investors that aren't specifically trading volatility are using options as a hedge against long/short stock positions, not as standalone trades in and of themselves...
you can also think of skew in terms of a volatility curve... in a put skew, the expectation is either a grind up or a crash down... that's what indexes do, right?
in call skew, the expectation is either a crash up or grind down... this occurs in HTBs specifically because the short interest is so high that when a run up occurs its easy to create a mini short squeeze - thus, when HTBs (i.e., meme stonks and high fliers) pump they tend to go parabolic, then just bleed profusely for however long until some new catalyst makes them jump... those parabolic run ups are in large part due to shorts having to cover on the run up...
go look at the chart on MVIS... prime example of cyclic short squeezes, and MVIS has some of the highest call skew in the market + some of the highest short interest in the market as well... often times you can see these cyclic short squeezes happening just before major options expirations as well!
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