Quite a lot of traders use John's recommended vol model settings of "Use combined call/put skews" in OptionVue. My understanding is that the only reason one would want to combine them is for stock options that are less liquid whereas for index options, that are much more liquid, modeling the calls/puts separately should be more accurate. Do you know why John recommends a combined approach to call/put skew modeling?
If you choose to model the skew curves separately you get different deltas and hence you would select different strikes versus using John's recommended settings.
How have you configured OV? My thinking is to use John's recommended settings for his systems and use separate modeling for the stuff I'm trying to develop on my own.
What are your thoughts?
John Locke has always recommended combining call and put skew, and continues to do so today.
As it appears you may have already noticed, the skews of puts and calls are quite different, especially when you get big moves up or down.
In the past, I decided to do my own set of backtests and compare the accuracy of combining call/put skew vs not combining them.
I found that I had slightly more accurate results of P&L when not combining call/put skews.
John Locke created all of the guidelines for his trades by having combine call/put skew turned on.
Note that deltas will shift across the entire chain when you combine call/put skews.
Therefore, if you wish to follow John Locke trades strictly by his original guidelines, such as hitting a particular adjustment point based on the position deltas, then I would suggest that you stick with having combine call/put skew enabled.
On the other hand, if you have understood the main concepts that he teaches in the trades, and are therefore happy to make your own determination of when and how to adjust the trade based on what the greeks are saying and the shape of your T+0, then in my opinion, you'll have slightly more accurate projections by turning off combined call/put skew when trading the main indexes.