How News Affects Vol and Skew

Discussion in 'Options' started by livevol_ophir, Jan 27, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    TM is trading 80.52 down more than $6. The IV30™ is up 21%.

    The news, of course, is this:

    <b>From Seeking Alpha (a great newsletter fyi)</b>
    In an unprecedented move, Toyota (TM) has halted U.S. production and sales of eight models, including its top-selling Camry and Corolla models, on mounting concerns that defects might cause the cars to accelerate unintentionally. The eight models represented 57% of Toyota's 2009 sales. A Toyota spokesman didn't specify how long the sales suspension will last, but the move will no doubt be costly both in terms of lost revenue and damage to a once-strong reputation for safety.

    The company has traded over 6,000 options today in the first 45 minutes on total daily average option volume of 981. The Company/Stats Tab snapshot is included in the article.

    The Option Tab snapshot is also included in the article.

    You can see the downside puts are trading on greater volume than open interest (OI) - these are opening trades. These trades are pushing up the volatility on those strikes and therefore bending the skew relative to normal. The skew charts for today and as of 11/20/2009 are included in the article.

    Note that on 11/20/2009 the months stacked on top of each other pretty well. The downside skew was "normal shaped" with a slight upward turn to the downside. To read details about why option skew exists the reader is directed to the blog "Understanding Option Skew" available on the article.

    The skew chart as of today shows a distinct separation of the months on the downside - with the front month (red) considerably higher than the other months. This indicates higher perceived risk in the short term - read "uncertainty".

    You can see details, charts, prices, skews and comps here: