I promised in another thread to post what in my opinion is the number 1 most direct and precise factor driving the skew in S&P500 options. Here it is. If I could buy OTM puts and sell OTM calls at the same volatility, I would make money day in and day out, virtually risk-free, with a ferocity and consistency the world has never known. I would quickly become the richest man in Babylon. I would be so rich I would fly all of you to Chicago and buy you a drink - even beep1 if he promises to behave himself. How would I do that? I've mentioned before that when the S&P rises, the VIX drops and when the S&P drops, the VIX rises. That is true in every time frame - tick by tick, minute by minute, hour by hour, day by day. I've posted charts proving that point before, and would be happy to do so again. It's the most consistent phenomenon in all of trading - at least I can't think of a more consistent one. So if the futures were 1200 and I could buy 1100 puts at say 20% volatility and sell 1300 calls at 20% volatility - and buy futures so I'm delta-neutral - It would be almost impossible to lose money. When the futures go up, I would become short vegas. What do you want to happen when you're short vegas? You want it to go down, and that's what would happen. Money in my pocket. I would buy premium cheap and become premium neutral again. If futures went up more, I would again become short premium (including short vegas) and volatility would drop further. More money in the dmo account. I would again buy premium and become premium neutral. If futures went down, I would become long premium and volatility would go up. Still more dough in my pocket. I would sell the expensive premium until I was again premium neutral and await the next move, which again would only make me money. And if ever there was a crash? My god - I would become so rich that Rupert Murdoch would become suicidal with jealousy. But Mr. Market just hates when that happens. He can't stand it when making money becomes easy. So he prices the otm puts just high enough and the otm calls just low enough that it neutralizes the profits you would make from this play.