Friday, September 20, 2013

Aqumin Volatility Newsletter 9/20/2013 - $SPY

Will this upside skew ever die?

It is kind of a quiet day as we wind toward the end of the week and my thoughts are wandering to what will happen next. The Fed is pumping again so my question is do we go higher or lower? The stock market is not giving back too much today. The only thing really getting slammed is the front term IV in the indexes, especially at the money.

The OptionVision™ 3D chart here is very helpful for that. Note the large wasteland in the middle yesterday. That is implied volatility imploding ATM. The more interesting thing is where it is not imploding. Look at the upside call skew. That is still bid just a bit. That is a sign the upside skew is getting closer to the ATM implied volatility.

9-20-2013 11-36-36 AM

This is usually a sign that the market is expecting to go up since there is an absence of call sellers. They simple have not come back in yet. The curve has looked like this for at least two weeks and so far has been right. Through Syria, the FOMC and whatever else is going on the market is still looking at upside.

Hard to believe but that is what the skew says for now.

Look at upside ratio call spreads in the SPY for even or small credits on shorter duration like in the Oct 4 Weekly cycle. I expect we go higher just not as fast as the last two weeks.


OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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