Volatilty Skew

Discussion in 'Options' started by ProHobo, Oct 25, 2006.

  1. ProHobo


    I have notice an increase (in fact) inverted skew on the call side in the major indices.

    I fully understand the concept the increase in underlying, while SD remains the same, the decrease in implied volatilities.

    But coupling that with the heavy buy-writing is driving volatility into the toliet.

    The put skews in the indices seem to remain high.

    Couple this with the VIX dipping it's head below the 11 line, I would wager for a correction here (not crash). But seeing a good pull back into the 1300 level for the SPX.

    The more I talk with people, the more I read, the more I hear about this market is heading higher. Fear is gone in the market, but nothing economically has changed in the last couple of months (other than oil coming down - but that has a 3-6 month lag effecting earnings).

    I wager that the skew flattening coupled with the VIX getting below 11 (mid 10s) I would expect a correction.

    Question: While people agree the VIX is a rather good indicator, but does anyone watch the skew to derive market expectations?