Trading Skew TYLER MICHALOVE BLACKPIER CAPITAL Disclaimer There
Trading Skew TYLER MICHALOVE BLACKPIER CAPITAL
Disclaimer There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Tyler Michalove(Blackpier Capital) and all individuals affiliated assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for stock observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of Blackpier Captial may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Blackpier Captial is not a financial advisor or Broker Dealer. Blackpier Capital does not recommend any trades presented and the use of trades are hypothetical. This presentation if for educational purposes only.
The 4 Questions 1 2 Why should all traders care about skew and volatility? How to identify and measure different skew environments 3 How does skew affect butterfly trading returns? 4 How can we design a trade to take advantage of different skew environments?
Volatility And Options Pricing Volatility = Demand + Probability = Price
Skew and Probability Volatility Market Price
1987
How skew moves Steepening Skew October 2014 November 2014
How Skew Moves Flattening skew July 2015 September 2015
Correlation Volatility up, skew flatter? Volatility down, skew steeper?
All relative Measurements Different ways to measure and look at the curve What’s important to your style of trading?
10 20 40 Your slice of the options market Delta is probability that an option will expire ITM Expansion and contraction of probabilities
10 20 40
Historical Skew March 2013 December 2015 September 2016
Historical Skew March 2013 December 2015 September 2016
March 2013
Steep or Flat? Find the average skew value over a data set 19% from 2013 to 2017 Is the current measure above or below the average?
Average Returns Strategy A B C Above 19 and Flat 2. 23% 2. 54% 2. 04% Below 19 and Steep 3. 08% 0. 48% 1. 17%
March 2013
How do we know at decision time?
Skew Efficient Trade
Risk Graph
10 days in
The Power of Skew
The Power of Skew
Questions? tmichalove@blackpiercapital. com
- Slides: 25