What metric do you use to keep track of skew?

Discussion in 'Options' started by 76132, Jan 2, 2019.

  1. 76132

    76132

    What are some industry/widely used methods/metrics to keep track of skew?

    Do you:
    • Keep track of the differences in IV based on delta. For example 25d IV - 50d IV.
    • Use a percentage based system. (25d IV)/(50d IV)
    • Track slope plotting IV against moneyness. I'm reading this document and it has a bunch of graphs with IV on the y axis and ln(strike/spot)/(averageIV * sqrt(time)) on the x-axis.
    Thanks!
     
  2. Robert Morse

    Robert Morse Sponsor

    When I traded full time, I looked at the diff in IVol between the 25 Delta call and the 25 Delta put. I also found it showed changes short term supply/demand.
     
    MarkBrown, 76132 and beerntrading like this.
  3. tommcginnis

    tommcginnis

    I have a range of preferred trade deltas and track them with (traffic-light) color formatting.
    I compute P(HIT) probabilities separately, but format them in a similar-but-not-identical fashion.
    (This is Gaussian/Normal, and thus symmetric.)

    With this method, I can see the differences, by side, by strike, and by expiry, between symmetric and the market's bias-of-the-moment, in an instant.

    If I track them to the (individual strike) IV, that is discernible as well, and thus is skew, and at a glance.

    Very handy is fast moving markets.
     
  4. 76132

    76132

    cool. I just read something and said the exact same thing. Thanks!