Does anyone have any hard data on how premium in calls expand during a selloff, while vix is rising. I know the put:call skew widens, sometimes significantly(as much as 9:1 during the 08' crash), but how much premium expansion is happening on the call side. A case could be made that in a market like this where prices continue to rise day after day, the call premium could expand in a similar manner. Those are just my guesses, but what I am really looking for is research on it.
It really depends, a lot of times the skew would flatten in a sell-off. It's only natural, as people who are long protection are selling it and buying the upside. Also, as the absolute level of volatility goes up, downside vol premium is less pronounced (vol can't go up to infinity so cost of volga goes down). Where did you get the 9:1 number and what exactly does it represent? If the ATM volatility is low, the call side gets bid up in a rally and volatility surface starts to "float" (i.e. acts more like sticky delta). It does not look like we are quite there yet.
It's from a chart that I saw last year looking at put:call skew going from around 06' to present. I don't remember the details and if it was based on closing prices or intraday maximum, or what the delta was. My guess is a 2SD skew. At a high level the takeaway was that skew sits at around 1.5 - 2/1 most of the time, but jumps to 4:1 up to 8 or 9:1 in absolute meltdowns. I definitely want to understand the call side price (greek) effects during a strong rally, like we are seeing now, even up to a melt up scenario, and understand better how the call side dynamics change.
Sorry, what are these numbers? Ratio of vols or something? For what strikes? Are they normalized? Cause that's not the dynamics that exist in real life. You should read an options book first, maybe start with Natenberg
Like I already mentioned, I don't remeber all of the details, but you are free to keep asking. Again, my best guess is price skew at equal strike distances somewhere in the 2SD range. Although I think you already got me on a good track with your previous comments about call side behavior during big rallies.