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Skew Term Usage

Discussion in 'Beginner Traders' started by Edward, Feb 19, 2017.

  1. Edward

    Edward Well-Known Member

    I believe most people knows what Skew is. However, I believe the term Skew is used to represent different IV comparisons at different times. For instance I think "volatility skew" means the IV difference between OTM Calls and OTM Puts roughly the same strike distance from ATM.-- I think when the term "Skew" is used Alone it means the IV difference between different strikes on Put IV, or IV difference between strikes on Call IV. This is a basic question. I could be likely wrong about my assumption. If someone knows for sure let me know.
     
  2. VKP

    VKP Member

    There's horizontal and vertical skew. Horizontal is the difference in IV between tenors. Vertical is the difference between strikes in the same expiry... remember, because of put call parity, a call is a put and a put is a call. Assuming 0 dividends, call IV should be the same as put IV.
     
  3. Edward

    Edward Well-Known Member

    I probably should have been more specific about IV comparisons.

    I have heard of IV comparison between OTM Puts and OTM Calls. Currently OTM Puts are cheap in comparison to their OTM calls. What is this type of Skew called??
     
  4. VKP

    VKP Member

    There are many ways of measuring skew. What you are describing is using a risk reversal to quantify skew. Another way is to compare the debits of the up and down butterfly (symmetrical 1 straddle width fly with the upper/lower (put/call) wing ATM)
     

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