From Theory To Practice - September 2, 2021 - Volatility Skew with Spreads

published 2 weeks ago by tastytrade, Inc.

Volatility Skew is a market phenomenon that always impacts our positions, one way or another. Normally when we think about volatility skew, it's within the context of Puts selling for more than Calls, which is usually the case. But interestingly, when this relationship is extended to Put Spreads and Call Spreads, the results flip - Call Spreads sell for more than Put Spreads. As we see with a potential position in V, the reason why traces back to the relative IV across the different strikes in the option chain.

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