English language

How to pronounce skew in English?

Full Transcript

[Music]
hey guys and welcome back to Mike and
his whiteboard my name is Mike this is
my whiteboard and today we're going to
talk about volatility skew it's been a
crazy few days in the market we could
have picked a better time to talk about
volatility in general but first before
we get into skew let's just review what
we learned last week with volatility so
we know that volatility is an aspect of
extrinsic value it can increase and
decrease based on the option price
increase in decreasing so again it's not
a factor that goes into the pricing
model but it is a result of option
prices increasing and decreasing and
because of that because you can buy and
sell puts and there's different markets
for those month of those puts and calls
basically volatility skew takes a look
at that and gives you a general
direction as to if there's a skew or not
so we've got our volatility skew here so
we're going to look at puts on the left
side calls on the right side and we're
gonna have our strike price at the
middle so we're gonna consider that to
be the at the money strike so when we
layer on the normal skew so if there's
not a skew at all you would
theoretically see that the right side
should be symmetrical to the left side
or the calls should be trading for the
same values as the puts so in this
market basically there's no skew either
way it's basically a neutral market
where there's no bias to any side so
after some of the most recent recent
crashes this skew doesn't really exist
anymore
now we have a normal market skew which
has the puts trading a little more
richer than the call so when we layer on
the next slide here we can see that a
normal skew has that distorted view of
the option premium table here so you can
see that the puts hold their value the
further they go out of the money so
again four puts when you're below the
stock price that's out of the money
because the put allows you to sell
shares at a certain strike so if you can
sell the shares below the stock price
that's out of the money and worthless
and four calls it would be above the
strike
stock price because calls give you the
option to buy a shares so if you can buy
shares above the market no one's really
gonna exercise that so it's out of the
money so you can see as you go out of
the money on the call side the value
tapers off very quickly because of this
normal volatility skew and when you're
looking at the puts the value holds
their own as you go further out of the
money now let's talk about why that is
so with a normal volatility skew you'll
see that puts our trading richer then
calls in general so if you look at the
market right now based on the current
activity the markets been all over the
place I think we hit a high of over 70
today for the e-mini S&P s and I think
they closed right around flat so we went
down 70 points and one trading day which
is crazy we've seen over a hundred
points the other day we were down so the
market is super volatile right now and
that's indicative in the option pricing
so when there's a volatility skew or a
normal market volatility skew puts our
trading richer than calls because again
people are hedging their positions so if
we assume that most of the market is
long stock if we're hedging our
positions there's two ways we can do
this we can buy puts which would
outright hedge the entire position or
sell calls and again since volatility is
the result of option pricing if I'm
buying puts that's going to increase the
put price and if I'm selling calls
that's going to decrease the call price
which is why you see this normal skew or
this normal market skew so back in the
day you might have seen no skew at all
because people weren't aware there
wasn't a heightened sense of awareness
of the market like there is right now
with how volatile everything is
everyone's got their eyes on their
portfolios everyone's looking at the
market and because of that people are
skewed to the puts in terms of puts
being richer than calls and people are
selling calls against their position
which reduces the price of calls so this
is essentially a normal market skew
because people are buying puts
selling calls to hedge their long
portfolios so if we look at a reverse
skew it's a little bit different so this
skew has been attributed to stock market
crashes because people were aware of
their shares and now they're hedging and
hedging by long puts or selling calls as
two ways you can do that but reverse
skew we're gonna start off again with no
skew at all so you see that the graph is
very symmetrical on the right and left
side but when we throw on the reverse
skew you can see that it's basically the
opposite so with a reverse skew the
calls would be trading richer than the
puts now you might think to yourself why
would this ever happen how could this
happen
there's a lot of different reasons but
basically we would attribute it to maybe
a stock market crash up or if the stock
market is crashing up or whatever
underlying you're looking at is crashing
upwards where there's a ton of
speculation to the upside so people are
buying calls which is going to increase
the price of the calls or they're
getting rid of their hedges so they're
selling out of their puts or they're
just selling puts to collect premium
those are two ways that bullish
speculation can occur and because of
that you might see a reverse skew so
again two ways that reverse you can be
completed is basically by with a bullish
speculation here and if we're buying
calls that's going to increase the
option price of the calls if there's a
ton of speculation here and also selling
puts so if people were long puts on
their portfolios and now you can see
that the stock price is just going up
and up and up
maybe they decide to close out of that
or if they're trading like us where
we're selling puts then they're going to
be that's going to reduce the price just
as well and people are collecting
premiums so these are two different
skews that you might see in the market
and a reason for each of them so again
today the stock market went from up 70
points to flat so if you look at the
market right now if you look at SP X or
SP Y specifically if you look at the at
the money options you can see that just
out of the money
the puts are their trading much richer
than just out of the money than the
calls and this is basically true for all
of the expirations it's especially true
the further out you go but it's very
evident and clear you'll see that most
underlyings trading right now are going
to have the normal market skew they're
not going to have this reverse skew
because everyone is speculating to the
downside there's a lot of fear in the
market so the normal market the
volatility skew is going to be in place
this reverse skew again would only
really take place if the market is
crashing up or if there is anything else
in place so it's it's a lot harder to
pinpoint reverse skews but the normal
market skew would be a skew to the
downside because most of America or
anyone that's trading is going to be
long stock and they're hedging their
position in a certain way so let's get
to the takeaways here so some takeaways
for our volatility skew the very first
one is the normal market volatility skew
can be attributed to past crashes so if
you have the ability to look at options
data before crashes you can see that
there probably wasn't as much of a skew
as there was today also as people become
smarter investors and because the option
market has grown in terms of liquidity
and awareness just in general people
understand that buying a put would hedge
against long stock completely or selling
a call would under hedge against stock
so just that transaction the more puts
that are bought the higher the option
prices are going to be and the more
calls are sold the lower the option
prices for calls are going to be so that
creates this skew where the puts are
trading higher than the calls for a
normal market skew volatility skew is a
result of long stock hedges so again
most people especially institutional
strategies institutional traders there's
got a ton of shares and different
underlyings if they're hedging against
that stock they're gonna be buying puts
and selling calls reverse market
volatility skew is rare and sometimes
you can attribute it to crashing up or
if there's a ton of speculation to the
upside and not much speculation to the
down
you're gonna see a lot of people trying
to ride that wave of the potential bold
move and they're gonna be buying calls
and they're going to be getting rid of
their short their long puts so they're
gonna be selling their puts which is
going to reduce the price of that or
there's going to be people trading like
us where we're just selling puts to
collect premium as the underlying goes
up and last but not least usually the
result of speculative call buying so
that is again for reverse skew and again
that can be attributed to stocks
cresting up or just bullish speculation
so this has been volatility skew we've
closed out everything that we have had
to talk about in terms of the basic
understanding of volatility I hope you
enjoyed it and we've got if you want to
take a look back to last week we've got
a bunch of different volatility segments
and I also made a guest appearance on
the webinar of July 31st of this year so
me and Ryan discuss IV rank and we've
got these awesome graphics again so if
you want to take a look any of these are
available for download if you just click
on the magnifying glass at the top of
tastytrade and you can find the show
Mike and his white board or the webinar
for that specific episode and you can
click on the slides button which will be
in the bottom right corner of the video
player so that will be available to you
so tomorrow we're actually going to be
off
we've got truth or skepticism in here
again but we will be back on Thursday so
don't miss it at 3:15 p.m. thanks so
much for tuning in if you've got any
feedback at all shoot it over to support
at doe comm or support at tastytrade.com
or you can tweet us at trading at doe
trader Mike or at tastytrade thanks
again and have a great night
[Music]
you

[Music]

Toggle Transcript

skew::adjective | Spocien Dictionary

skew

adjective

/skju/

having an oblique or slanting direction or position

Type	Words
Synonyms	skewed
Derivation	skewness

the picture was skew.

skew::verb | Spocien Dictionary

skew

verb

/skju/

turn or place at an angle

Type	Words
Type of	reorient

the lines on the sheet of paper are skewed.

Examples of skew

skew

Most customers are in their mid-20s to 40s, but the demographics can skew older.

From the dailyherald.com

Scarcity can even skew our choices of lovers and partners, if we're not careful.

From the denverpost.com

The winds played havoc with any ball in the air, and also helped skew the score.

From the post-gazette.com

The first is that polls ask questions in different ways that can skew responses.

From the theatlantic.com

For example, a volcanic eruption or an equipment failure could skew the numbers.

From the signonsandiego.com

No high school grade inflation or non-comparable class ranks to skew the awards.

From the thechoice.blogs.nytimes.com

And if the skew is too much, just tell people you were going for the Dutch tilt.

From the techcrunch.com

What makes reviews in broadsheets uninteresting is the skew towards non-fiction.

From the guardian.co.uk

Just remember that Google Reader subscriber stats will skew toward Google users.

From the mattcutts.com

More examples

Having an oblique or slanting direction or position; "the picture was skew"
Turn or place at an angle; "the lines on the sheet of paper are skewed"
(skewness) lopsidedness: an oblique or slanting asymmetry
Skew is a term used in antenna engineering. It is a technique to improve the horizontal radiation pattern of a high power transmitter station.
In fax systems, skew is the angular deviation of the received frame from rectangularity caused by asynchronism between the scanner and the recorder. This is the same as the angle between the scanning line, or recording line, and the perpendicular to the paper path.
(Skewness) In probability theory and statistics, skewness is a measure of the asymmetry of the probability distribution of a real-valued random variable. The skewness value can be positive or negative, or even undefined. ...
To change or alter in a particular direction; Neither perpendicular nor parallel (usually said of two lines)
(skewed) Twisted at an angle; Biased, distorted (pertaining to statistics or information)
(Skewed) A weighted distribution that is not symmetrical which results in having one tail longer than the other on a frequency curve. The skew is titled after the longest tail, for example, if the right side had the longest tail, it would be called skewed right.

How to pronounce skew in English?

skew::adjective | Spocien Dictionary

abandonment

Related words

skew::verb | Spocien Dictionary

abandonment

Related words

Examples of skew

Related

Subscribe to our Newslatter