That is all true and a good explanation. There are many explanations for the skew in the S&P500, but the one you cite is the best and makes the most sense IMHO. I would add only that "in a vacuum," the probability distribution is lognormal, not normal, so that bell-shaped curve is off-center. In other words, if all strikes traded at the same implied volatility, the out-of-the-money put would be cheaper than the equally out-of-the-money call. If the S&P is at 1400, the 1350 put would be cheaper than the 1450 call if both traded at the same implied volatility.
In many contracts, the skew is somewhat changeable, as you say. As the underlying approaches a top, traders get excessively bullish, and they buy OTM calls and shun OTM puts. As a result, the upside skew steepens, and the downside skew weakens. The reverse happens as the underlying approaches a bottom. However - strangely - that is NOT true of the options on S&P500. That skew is just rock-solid, it never changes. I don't know of another contract like it. So I agree that the skew is the explanation to the original question asked in this thread. But watch the S&P500 option skew and you'll see that it's always the same.
The cost to carry a put vs a call is the true answer the skew, particularlly in the SPX just adds to it
With one caveat - if we're talking about options on futures, there is no cost of carry of the underlying.
well actually i was asking about the options on the futures. so does that mean this is all related to skew and not cost of carry? sorry for not being more clear.
Yes. The cost of carry of the underlying should already be reflected in the price of the futures. Normally the futures trade at a premium to the cash for exactly that reason. So if you were talking about options on futures, then the entire explanation should be the skew.
thanks. about midway through my question i was going to ask if it was related to the dividends and interest but it seemed that should already be built into the futures premium.