Hi there, sorry I haven't been on in the last few days...to answer to your question ... I don't know I would have to try to get my feet wet before I can say yes or no, but as I said before for me it is all about the strategy not the underlying. If I put down 1 to make 10 I have 90% chances to lose and 10% to win, however if I risk 10 to make 1 then there are 10% chances to lose and 90% chances to win.
the market clearly has a directional bias, that's why puts are considerably more expensive than calls. the bias is built into the pricing. by choosing calls over puts he is in effect implying the market bias is wrong and that the call side is overpriced.
"Man the stupidity continues.." That is why I had to ask you, because your posts are like swiss cheese with a lot of holes. I will give you time to cool down, then I will show you the holes. In the meantime re-read your posts, and you might be able to see your holes if you have not already. And why assume you are the only smart guy in the room, particularly when you are not?
Is it paranoia or you like to lick things? If you like to lick, make sure what/who you lick is worth the licking, and is clean and no hole.
It's not a directional bias, it's the consequence of the need for portfolio hedging. The skew holds in massive bull markets as well. Those otm puts trade at the same vols as the itm calls.
i must say that is a very good explanation to why there is the put skew in equities. can you briefly explain why certain commodities has a call skew(such as cl)? is it simply because the hedging must be done to the upside because the strong moves tend to go in that direction?
I know what you mean, but CL is probably not the best example. At the moment, the CL skew is quite even up and down - a true smile of volatility. I love the crude skew because it is very pliable - the call skew can be steep while the put skew is flat, the put skew can be steep while the call skew is flat, etc. That baby moves, unlike the SPX skew which is rigid as a board and never budges. A better example of what you're looking for is gold, or the grains. Why do those exhibit skews that are the opposite of the SPX skew? My answer is to look for where the emotion is - the excitement and the panic. In stock, it's the downside. In natural resources, it's the upside. That's really just another way of expressing the same thing Atticus said. Most of the world is long stock so portfolio protection means buying puts. The world is short wheat and soybeans, so portfolio protection means buying calls. You and I are "short wheat" because we're going to consume more bread and pasta in the future than we own today. Does most of the world panic when stocks go up? Of course not. Does most of the world panic when wheat goes down? No again.
Your understanding of commodities skew will receive a standing ovation from a series of numbers equal in value to a number that looks like this letter "O" or the expression below :eek:
thanks dmo. i really hope these teenage dumbasses don't disillusion you to the point of leaving. i guess anyone who talk's shit and then doesn't back it up is a real class act.
For some, a put spread, is the best way to short premium and keep vega risk lessened. Or a diagonal can be used.