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$BABA volatility pricing skew on CALL side before earningsThe high vertical CALL pricing skew on the options chain shows that the CALL options for the September expiration are already much more expensive than the PUT options at the same expected move distance. This suggests that market participants are pricing in an upward move. Let's take a closer look at the probability curve formed by the options chain. I'm very curious to see whether the 8/8 to +1/8 quadrant line will hold the price for BABA, or if it will continue to surge into the Upper Extreme quadrant, heading towards +4/8 until $100. If everything stays the same, something like this could be an interesting lottery ticket for me. I'm thinking about an OTM call butterfly with a short expiration before earnings. I have to admit, I’m not a big fan of risking on this red/black roulette type of play, but if things stay as they are, I might consider combining it with a 40 or 68DTE credit put ratio below and the call butterfly above before earnings. But we'll see how things look on the day before earnings!
NYSE:BABA
by TanukiTrade
Extreme fear in $SPY at close yesterdayIf you track the CBOE:SKEW index, it reveals when put options on the S&P500 ( AMEX:SPY , FX:SPX500 ) are at high levels relative to calls. Sometimes that means there is a big event ahead and the market participants are buying "insurance" against a sharp drop in the market over the life of the options contracts. So, I think it is important to track CBOE:SKEW and to show you what that high CBOE:SKEW looks like in options prices, I have pulled up the prices of one month options on AMEX:SPY from the close yesterday (I did this work at the open today and posted it at my Key Hidden Levels chat room here at TradingView). I have plotted just 3 different options for calls and 3 for puts to show you. The green boxes are the call options that are just "out of the money". The bottom of the box is on the strike price and the height of the box is the option premium which means the top of the box is the "breakeven price" where the AMEX:SPY would have to rise to at expiration to be worth exactly what you pay for it (in this example). I plotted the boxes at the expiration date as shown by the black line at May 19th. 410p = 410 put option = $492/contract ($4.92 per share, but a contract is 100 shares). The 400p is $2.77 or 277 dollars for 1 contract which is 15 points down from the close yesterday. That compares to a 430c or 430 call option at $1.34 or $134/option contract. So the result is the market is willing to pay twice as much to protect against a decline in the market and only half as much to participate in an advance. If you track this data day-to-day and week-to-week or after a large move in CBOE:SKEW you can see how the market is thinking ahead of key news like the Fed Meeting Date on May 3rd. I graphed the Fed Meeting Dates with red-dotted lines to show you some key risk dates ahead. We are also in earnings season here and plenty of fears of recession or inflation, but mostly of the Fed hiking further. I hope this graph is useful to visualize and understand options prices and how the market is positioned at the moment. Cheers, Tim 12:06PM EST, April 19th, 2023
Editors' picks
AMEX:SPYLong
by timwest
19
Skew IndexThe SKEW index is a measure of potential risk in financial markets. Much like the VIX index, the SKEW index can be a proxy for investor sentiment and volatility. The Skew Index measures perceived tail-risk in the S&P 500. SKEW values generally range from 100 to 150 where the higher the rating, the higher the perceived tail risk and chance of a black swan event. A SKEW rating of 100 means the perceived distribution of S&P 500 returns is normal and, therefore, the probability of an outlier return is small. Skew Index is at the lower end of its risk-range. Market doesn't appear to be hedging any tail risk
S
by RHTrading
SPY Weekly review and Forecast: August 15th, 2022 The Summer rally continued this week on the back of strong earnings by Disney ($DIS) and the market interpreting CPI data as inflation cooling. However, I think the market internals are telling a more important story. This week, the market paced by the financials... on Thursday, the XLF tested the upper edge of its weekly expected move and ultimately broke outside of it on Friday, leading to a textbook end of week Gamma squeeze. Below is a snapshot of this past week's action (percentage gains/losses, expected moves for the upcoming week) and some ideas about what we may see in the coming week. SPY +1.69% (+/-7.65) QQQ +1.95% (+/- 9.33) IWM +2.04% (+/- 5.06) ____________________ Technology +1.99% Energy +0.76% Financials +1.57% ____________________ VIX: -3.32% (19.52; ~30% IV Percentile) ____________________ Next week has some potentially market moving events like PMI (Tuesday), and GDP (Thursday), as well as a few other data drops scattered throughout the week. The SPY closed within a point of the intermediate level of 428 I added last week. The rally has been fierce, so I have to wonder how much higher it might go before we see some kind of a pull back. Rather than try and guess what the action is going to be like, I think the XLF is holding the cards. Its at a key area on possible resistance on it's Daily Volume Profile... a meaningful break above will likely drag the rest of the market up to 440. If it rejects, it will likely lead to a pull back in the broader market. Also worth noting, SKEW continues to rise, signaling that a bout of volatility could be looming.
AMEX:SPY
by InnerMotionTrading
SPY Weekly review and Forecast: August 8th, 2022This week's action was largely defined by two dynamics: Employment data, and sector rotation. After initially selling off on Friday after the Employment data drop, the market reversed course and rallied much of the day before ultimately finishing slightly down on the session. Despite trade being predominantly sideways in an 80 point range, the market extended it's rally and finished up on the week. The range was the result of the aforementioned sector rotation. Tech moved into the leadership role as Eneregy, which had been leading the rally, sold off considerably. Stuck in the middle were the financials. Before looking ahead, here's a snapshot of last weeks numbers, and expected moves for the upcoming week: SPY +1% (+/- 8.81) QQQ +2.6% (+/- 9.33) IWM +2.7% (+/- 4.96) ____________________ Technology +2.8% Energy -5.1% Financials +0.8% ____________________ VIX: -0.84% (21.14; ~25% IV Percentile) ____________________ Heading into next week, the market is maintaining a fairly resilient - if not strong posture. There will be a smattering of earnings from small/midsized companies throughout the week, and a potential market moving event with CPI data being released on Wednseday. A natural question to ask is when volatility will find a bottom and make a return. Nevertheless, the market looks posied to finish Q3 strong. I've updated the SPY chart to include an intermediate upside target of 425, which is very much in play heading into September. There is reason to be cautious however, as SKEW is potentially throwing out warning signs as it finished the week with its highest print in nearly 3 months.
AMEX:SPYLong
by InnerMotionTrading
SKEW IndexDespite numerous mentions about the CBOE SKEW Index, we are no where near the 2018/2019 lows (which are the lowest readings on file for the past decade). Understanding how SKEW Index works, it's relationship to Vol Structures, and impact towards Gamma & Vega and how/what it implies by way of Institutional Hedging is another tool for the pros. Do your DD (due diligence) before reading someone's tweet, getting the reddit cliff notes version, and then deploying your personal capital...the markets are not easy, and complex relationships take time to understand all aspects and angles. MMs want you to believe everything is linear, but they just aren't!
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by VeteranWS
VIX vs SKEW : Still volatility below the surfacecovid crash in march 2020 The key takeaway here is that despite SPX bouncing back after each sell off, the vix remains a hair trigger away from causing more damage. GEX is hovering around gamma zero but every time a move is made higher, an equal move back down follows shortly after. MOEX is going to have to open sooner or later, could be counter party risk that will cause that move over 40. I keep adding puts each time there is a move higher and buying calls on the moves lower. keep doing what works until it doesn't!
TVC:VIX
by SPYvsGME
2
SKEW Indicator and NASDAQ - point of reversal interest?SKEW is probably a little less known in the world of volatility than for example the VIX, but essentially it is a measure of the implied volatility of OUT of the money options, as opposed to AT the money options on the market like the VIX. I suppose it may be a better comparison to check SKEW vs the SPY, but I'm a NASDAQ guy so I wanted to have a look at this in particular. Basically the lower the SKEW is, the lower the market's expectation that the market price will move MORE than 2 standard deviations from the current price. It's difficult to ever draw perfect correlations or conclusions, however, it does seem that once the SKEW "looks like" and this is more of an opinion of how you think the chart of the SKEW looks, but when the SKEW looks like it's made at least an interim bottom and is reversing upwards, this seems to correlate with the market/NASDAQ getting at least an interim reversal. (some instances indicated by the vertical green lines) Difficult to put into text this kind of idea, but kind of consider, if the SKEW is a measurement of the market's expectation to get a move from current price more than 2 standard deviations in the next month, then once the SKEW "bottoms out", it means that the market isn't really expecting a big move to happen in the next 30 days (this includes bearish and bullish moves btw); but when SKEW looks like it's made an interim bottom, and looks like its starting to creep back upwards, this is the point at which market sentiment is starting to shift slowly, showing as the SKEW moves back up that there is more and more expectation of a move in price more than 2 standard deviations from the current market price. It's at this point (the point of looking like a reversal off of an interim bottom in the SKEW) that I think could correlate to at least interim bottoms in the market; because we're precisely at the point at which SKEW shows us the market doesn't think we're about to get a big bearish OR bullish movement in price; and the fact we're at the point which it's just starting to creep upward again; shows us that the market is expecting SOME movement in price; but if it were going to be a sharp correction of some kind you would see the SKEW at a much higher level already, not just reversing off of what looks like a bottom. Again, correlation maybe, opinion maybe, trying to get a sense of how something like the SKEW communicates what the market itself is thinking. Food for thought.
S
by TraderCaps
1
Building a Market ProfileTraded really well yesterday, my longs which were underwater went green around the gamma -/+ flip zone. I'm building a stronger position into JAN as we likely will continue to base around the 20D MA and burn stops maybe as low as 4602 would be my guess. The reason I was so bullish yesterday was because of growing evidence that VIX would compress into the EOY as tax trade ends and new seasonality flows return. Over the holidays I plan to look at Delta-Sticky skew that Cem Karsan mentioned in the latest podcast and his tweet yesterday . Here is SPX during Feb 2016 to get a sense for the capitulation around the 20D/50D we just did that last few days before yesterdays rally. Merry Christmas all. Hope you have good trades. Not Financial Advice. Just Following the Flow.
CME_MINI:ES1!Long
by SPYvsGME
EARLY WARNING NEGATIVE CROSS - SO WHAT?My early warning indicator can offer warning signals well in advance of market turbulence. It can also help on the long side by giving confirmational signals when in agreement with a trend. It recently had a negative cross and is enough for me to raise an eyebrow and err on the side of caution. There are times when a signal crosses negative only to return positive..i.e. a false signal. It is useful, however, after a very strong trend (like we have seen over the last year and a half) and it turns down sharply. Take a look at the vertical lines for examples and take note of the one in January 2020. The signal crossed over bearish and the market sold off. Then the market found support and made a new high but the signal was still under the crossover (negative) and we had an incredible crash. I have no idea what will happen but it is certainly possible we could see a repeat of that.. I'm watching for the following: a) a sharp selloff followed by a sharp bounce followed by a crash (like what unfolded Jan 2020-March 2020) b) just a sharp drop... i.e. flash crash (but perhaps not a major top) c) a false signal and another sideways consolidation and period of noise Who can say? Just be careful out there, measure your risk to reward, and study. Speculate less. Study more. Also consider looking down when others are looking up... look up when others are looking down.
TVC:SPX
by gghsusa
6
Stocks - Lotka-Volterra Predator-PreyIdea for Stocks: The Lotka–Volterra model makes a number of assumptions, not necessarily realizable in nature, about the environment and evolution of the predator and prey populations: 1. The prey population finds ample food at all times. 2. The food supply of the predator population depends entirely on the size of the prey population. 3. The rate of change of population is proportional to its size. 4. During the process, the environment does not change in favour of one species, and genetic adaptation is inconsequential. 5. Predators have limitless appetite. The bottom line is that when prey population rises, predator population follows, before prey is hunted back down to the baseline and predators starve - in a continuous cycle. - Call-Put ratio can be seen as prey (pure bullish positioning), SKEW can be seen as predators (tail risk positioning). - VIX (death rates) rise as prey and predator populations fall together. - Clear relationship can be seen as prey population rises > predator population rises > (VIX rises) > prey population falls > predator population falls > (VIX falls) > Repeats - From 2008, it appears that (4) had been violated due to QE following the 2008 crash, but the environment is returning to normal around 2017. Speculating a return to a normal predator-prey relationship. Prey population cannot continue to grow as predator population grows with it. Reset of cycle is near. GLHF - DPT
P
by UnknownUnicorn1043646
$ENPH Bullish Earnings PlayI trade almost entirely using options, shares are typically only there to hedge Greeks or if a stock has a terrific opportunity to sell covered calls. When you are trading in options you need to understand that while technical analysis and fundamental analysis are still important, what is usually most important is how the options chain looks-- what is the Implied Volatility curve, the skew/smile, and etc. This is primarily why Earnings present such an incredible opportunity because people throw money all over the place betting on some kind of move, and usually over pay. So note that this play is less about Enphase Energy as the company or what support/resistance levels I see and etc, its more of a "This is a killer value" option spread. Background Enphase is a solar energy stock. Solar stocks and electric vehicle (EV) stocks as well as some others have been really beat up recently but I've been seeing a ton of reversals which lead me to believe another "trash flash" rally has just begun. Looking at $IWM or $US2000 you can see a wedge or sort of diamond top has broken through to the upside. Technical My bottom pane has my Price Action Index indicator, which shows a breakout to the bull side already underway on this stock. You can see that on the Bollinger Band as well-- it was squeezed in consolidation and now the band is expanding in size as the stock hovers above the top band. Options Analysis There are some levels of resistance above that I think this stock can go through pretty easily until it gets to that $190-$210 cloud. This is so obvious that options traders have attacked OTM calls for near-term expirations pretty aggressively. Here is a (crude) diagram of the $ENPH smile graph for this Friday’s expiration-- This smile is called a “forward skew”. Note that it is INSANELY weighted towards the bullish side. Options traders are pricing in the potential for a giant move up. Therefore, we try to exploit it . As this near-term 4/30 expiration has priced in OTM calls very expensively, the next expiry afterwards, 5/7 has about 20% lower IV At The Money, and OTM we’re looking at about 25% less IV. It looks like this: $200 Call for 4/30 has an IV midpoint of 120 $195 Call for 5/7 has an IV midpoint of 90 This spread is affectionally dubbed the “Poor Man’s Covered Call” but it is simply a Diagonal Call. It is somewhat similar to being long shares, however I want to limit my risk to the downside and not get stuck holding shares for a long time. If it does backfire by a lot then that means my long calls will go worthless If the stock doesn’t move at all from earnings, I make the decision of: rolling my short calls to my long date (5/7), buying to close the short calls after they’ve been IV Crushed and hoping for some upside to come later, or taking a small loss (say $200-400) If it goes mildly up, I make a mild profit If it hits $200 there and expires at that price, I take my maximum profit: my choice of closing the spread then, holding my long call (I would probably roll another short one against it) If ENPH does some insane move over 3 standard deviations into the moon, say $240, I still make profit but that short $200 call digs at it (I have more extrinsic/time value with my option being 1 week further to expiry than the short one does) What is really nice about this setup is you have ALL of the Greeks working with you! I am positive Delta, very positive Theta , a smidge positive Gamma, positive Vega, and even positive Rho (not that that matters much here). Past Earnings What I love about this earnings play is that of the past 12 earnings reports Enphase has had, only 2 have had a move to the downside . The other 10 have all been positive-- +1.0%, +4.2%, +8.8%, +9.5%. +9.5%, +14.0%, +18.7%, +29.3%, +30%, and +42.4%. A move up to $220 is not out of this realm of possibility. But all I am looking for is a move up that is at least 2.0% or so. And the beautiful thing is that the Average Move of the last 12 earnings comes out to +/- 16.6%, which would be about $201. Trade Entry I got my spread filled at a $1.98 debit. I put my walk limit order in and started working on this idea and got filled there. I am plenty fine with that fill but if you are patient the Bid-Ask spread is currently $1.72-$2.33 with a mid of $2.03. From my personal experience, getting filled can be a tedious process because I want the best possible price but I also hate being too cheap and watching a good trade pass me by. In the end a nickel or dime difference on the fill is not the killer, it is the trade not working. Best of luck. Let me know if you have any thoughts or ideas or are playing this as well. EARNINGS ARE TOMORROW/TUESDAY AFTER MARKET CLOSE! Please remember that this is NOT financial advise and I have no certifications or qualifications to give financial advise.
NASDAQ:ENPHLong
by chrism665
1
Old Nuggets: Defined Risk Skew AccommodationSkew. It can be a pain in the butt if you want to trade both delta neutral and probability neutral. In QQQ, a delta neutral setup at the moment would be: selling a spread on the put side with the short put leg at the 275 (17 delta) and on the call side with the short call leg at the 344 (17 delta). However, this results in a short put strike 38 strikes away from current price and a short call strike 31 strikes away. It's delta neutral, but the probability of profit on the put side is 83% and on the call side 78%, so it isn't both delta neutral and probability neutral. Ugh. Fortunately, there is a solution to obtain both a delta neutral and a probability neutral setup, and it's with a variation on the iron condor: a "double double" -- double the contracts on the call side, with the put side being double the width of the call side spread. Because the risk associated with the put side spread -- that attributable to a five wide -- is greater than the risk associated with the call side (2 x 2 or the equivalent of a four wide), the maximum risk of the setup is that of a five wide -- the widest wing of the setup. In other words, doubling up the number of contracts on the call side doesn't increase buying power effect, because it's attributable to the widest wing (i.e., 5 > 2 x 2, so buying power effect is that attributable to the five wide). Here, you can't quite go exactly double due to strike availability at the moment on the put side (there's only five wides there), but you can go five wide on the put side, and 2 times a two wide on the call (the functional equivalent of a four wide) to get both a net delta and probability neutral setup: Put Side Short Put Leg: 17 delta Put Side Probability of Profit: 83% Call Side Short Call Leg: 2 x 12 delta Call Side Probability of Profit: 82% Resulting Setup Delta: .07 Naturally, skew isn't always to the put side; it's sometimes on the call side, where we'd do the opposite to accommodate skew: double up the number of contracts on the put side (but at half the spread width of the call).
NASDAQ:QQQEducation
by NaughtyPines
6
Skew Vix divergenceLike last year the pro's buying protection while Joe Six Pack is selling vol on his Robin Hood account. You can't time when the real volatility kicks in but the signs are there. Would a Biden win be priced in and what would happen to markets when he wins? I would not be surprised that we would see at least a 50% correction when that happens. Time will tell watch your six and price action or join the pro's and try to get some cheap short exposure till end of year, you gotta be in it to win it. SWAN might be a nice ETF to look at ....
SShort
by TASAVANT
Implied Volatiliy a Risk Pre and Post Earnings AMZN AAPL GOOGLI want to point out two things in this post: 1. The elevated implied volatility before earnings on blue chips stocks is per se a risk factor due to high call open interest and the following reduction in implied volatility post earnings. 2. The SKEW index is signaling increasing tail risk. The first point: As I’ve pointed out in recent posts, high open interest has been a tailwind for stocks as market makers are short calls and forced to buy the underlying without any other purpose but to hedge. Before earnings, implied volatility (IV) on stocks rises significantly. For out-of-the-money options, the delta rises with higher IV (this makes intuitively sense because higher volatility means a higher probability for the option to get in-the-money). As IV rises before earnings, the sum of the delta dollars rises. This is forcing market makers to increase their notional hedges, i.e. they need to buy more of the underlying when their net short calls (status quo) in order to stay delta neutral. Post earnings IV falls . This is a risk when market makers are long the underlying stocks, and traders long the options. When IV falls (all else equal) the market makers may sell the underlying stock no matter how good the earnings reports are. The second point: The SKEW Index is derived from S&P500 options, and measures tail risk, which is the risk for outlier returns. When the SKEW is 100, the option market is discounting negligible tail risk. As the SKEW rises above 100, the tail risk is increasing. The SKEW is not a timing instrument, but worth watching as it reaches extreme levels (now >140). In summary: The large cap stocks have had an amazing outperformance as I’ve highlighted in recent posts. Even though they may beat earnings expectations, the structure of the options market may be a headwind post earnings. The SKEW is signaling higher tail risk.
Editors' picks
S
by eirikb007
1
The SPY looks like it will crash soonSKEW above 130, currently at 144 indicating that big money is heavily hedged to the downside. 10 day MA PC Ratio is well below .75 which tells me that a majority of investors are long. Spy looks like its touches the backend of the top yellow line while also tightening up its giant ascending triangle. VIX is about to hit bottom of bollinger bands that have almost tighten up to be completely inside the kelter channels. Should be an interesting to see what happens next. Is FANG invincible?
AMEX:SPYShort
by curtisrollo7
3
Put Call Ratio/Volatility Skew CurveIn most mature markets, options can be a major indication on price direction, or at least the markets expectations of future market direction. One way of looking at this could be through the Call/Put Ratio. The ratio is a simple measure of how many call options are being traded relative to put options. As you can see from the chart above (www.sk3w.co) the peak of this ratio was ~16 on 2/2/2019, with another peak on 12/6/2018 of ~9.5. When looking at these dates respectively on the BTC price chart below, these heavy Call buying days were precursors to a $800 rally over a 22-day period, and a $1,000 rally over an 8-day period. As you can see from the Call/Put Ratio chart, today the ratio is roughly around the average of 1.95. Another good way of looking at options to get an indication on future price direction would be through the Volatility Smile or Volatile Skew. This skew will show the sentiment on the demand to buy or sell calls vs. puts. When a market has positive call skew, the calls will have a more expensive ‘implied vol’, and when the market has positive put skew, the puts will have the more expensive ‘implied vol’. Below is the Volatility Skew Curve for March, June, and September BTC options. While analyzing this chart over the last week after this volatile price action, we have not seen a major shift one way or the other in regards to this skew. If BTC were to be exiting this BEAR market, we would expect to see Call Skew form within this chart. If you are of the opinion BTC will rally, then buying call volatility would be a smart play. If the $4,200 RESISTANCE that has formed in BTC breaks to the upside, we would expect calls to go bid and see call skew form in the chart. As for now, through this analysis, we seem to be stuck in this $3,200-$4,200 range and therefore remain BEARISH. The ‘trend is our friend’, and will stick to this outlook until forced to do otherwise. To see our full article with all charts and figures attached, please check out: medium.com
COINBASE:BTCUSD
by BitOoda_LLC
SPY: Potential market bottom during consolidation phaseI think we may have seen the bottom in $SPY, judging by the action in the last couple days. The market had reached the peak of a weekly signal, and after time ran out for the projected advance started a steep correction until now. Sentiment has peaked apparently, and we could be seeing a turn around in bonds, oil, and $VIX. Keep in mind we might be consolidating, and moving sideways all year, which is what long term (2 month bars) Time@Mode signals imply, and which also aligns with fundamentals here overall. Despite this, the market is supported, and a larger decline is not likely to happen. I hold larger positions in metals, and miners, with some exposure to oil, Euro and $SPY here. Cheers, Ivan Labrie.
AMEX:SPYLong
by IvanLabrie
2