Market Measures - August 21, 2024 - Put Skew and Call Skew in Different Underlyings

This episode explores the dynamics of put and call skew in options trading, particularly within the context of market volatility. Against the backdrop of fluctuating market indices (E-mini S&Ps, NASDAQ, Russell, and Dow), the hosts delve into the relationship between implied volatility and options pricing. More significantly, they analyze how put skew, often more pronounced in equities like SPY, becomes exacerbated during periods of heightened market fear and increased volatility. For instance, the discussion uses SPY and gold as contrasting examples, highlighting how put skew in SPY is consistently more expensive than calls, especially when implied volatility rises. In contrast, gold, due to its perceived price floor and scarcity, tends to exhibit call skew. The hosts conclude by emphasizing the importance of understanding these dynamics for options traders, particularly in adjusting strategies based on the level of market volatility and the resulting premium compensation for short premium traders. This means traders can leverage high implied volatility to their advantage, but also need to be aware of the increased risk.