Options Jive

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What the Heck is Skew

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Skew is where traders perceive the most risk. For example, for equities, the velocity of risk, and therefore skew, is to the downside because when markets drop, they drop much faster than they rise on average. For commodities, the velocity of risk is to the upside meaning that commodities tend to crash upward much faster than they drop to the downside.

To determine where the risk of a market lies, look at the option chain and pick a delta of a put and call option. At the same delta, if the put is more expensive than the call, then that market exhibits downside risk. If the call is more expensive, the market exhibits upside risk.

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