Thanks for the post! I think these are all very clear/valid ways to view skew. Just a follow up question to kinda poke your thoughts.
How would one view skew in a "forward vol" manner? E.g. skew in each time bucket. Is there value viewing it that way when trying to gauge its term structure.
Personally never tried to compute forward vols non ATM.
Even when it comes to forward vol I don't really think of as a tradeable number (maybe forward variance between 2 replicating stripes or swaps would be a coherent way to make it tradeable). I think of forward vols as a way to gauge relative cheapness or expensiveness but bc of path would never think I truly isolated the forward.
All of this becomes even wonkier when looking OTM it feels like a topic that goes beyond the grasp of tribal option analysis and into academics but not totally sure
Thanks for the post! I think these are all very clear/valid ways to view skew. Just a follow up question to kinda poke your thoughts.
How would one view skew in a "forward vol" manner? E.g. skew in each time bucket. Is there value viewing it that way when trying to gauge its term structure.
Personally never tried to compute forward vols non ATM.
Even when it comes to forward vol I don't really think of as a tradeable number (maybe forward variance between 2 replicating stripes or swaps would be a coherent way to make it tradeable). I think of forward vols as a way to gauge relative cheapness or expensiveness but bc of path would never think I truly isolated the forward.
All of this becomes even wonkier when looking OTM it feels like a topic that goes beyond the grasp of tribal option analysis and into academics but not totally sure
Strips not stripes 🤦🏼
Thanks for the post, I have few questions.
1. While putting on structures like vega neutral call spread we would be left with delta exposure. Do you consider getting your delta neutral?
2. Is risk reversal only a spot vol structure or can it be used to express skew as well?
3. Regarding ratio ironfly, isn't it a kurtosis structure rather than skew structure? Where we find tails are cheap and ATM is expensive relatively.
1. Delta exposure is up to the user. In the case of my GME trade I accepted the delta risk.
2. Risk reversals are primarily skew trades when done for vol reasons as opposed to collaring a delta position
3. Kurtosis is more technically correct i'd guess. I never really use that word. I just think about "my position on the wing"