Is volatility skew proportional to the ATM volatility of the underlying

Discussion in 'Options' started by traider, Oct 11, 2023.

  1. traider

    traider

    Is there more skew in a product like SPY OTM puts than a stock like TSLA OTM puts?
     
  2. Re: "
    Is volatility skew proportional to the ATM volatility of the underlying"
    No!
     
  3. traider

    traider

    WHY?
     
  4. taowave

    taowave

    Quick glance,it certainly appears that way, doesnt it??
    Keep in mind,its a quiet low vol market and I am guessing implied correlation is low


     
  5. Matt_ORATS

    Matt_ORATS Sponsor

    We use delta to normalize the measurement of skew or what we call slope.
    [​IMG]
    At-the-money volatility is the implied volatility at the 50 delta call and put. Strike Slope is a measure of the amount that implied volatility changes for every increase of 10 call delta points within the intra-month skew. It measures how lopsided the 'smile' or 'smirk' is. The derivative is a measure of the rate at which the strike slope changes for every increase of 10 call delta points within the intra-month skew. It measures the curvature of the intra-month skew or 'smile.' We chose just two parameters to describe the skew to get a reasonable fit for the fewest assumptions.
     
    M.W., Real Money and ajacobson like this.