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The Skinny on Options: Abstract Applications

Downside Tail Risk

The Skinny on Options: Abstract Applications

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

A natural continuation of any discussion centered around kurtosis is addressing any skew that might exist in the distribution. A market with no skew would showcase perfect symmetry on both sides of the mean, median, and mode. But, a market with skew will elicit an imbalance between positive and negative values. Even more specifically, negative skew indicates a market with a greater clustering of outlier moves to the downside.

When taken together, positive kurtosis and negative skew, we are left with a significant chunk of statistical support for carrying short delta in our portfolios.

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