There are only six times in history that option skew (out of the money bets on a market crash) exceeded 170.
Four out of six were this past week.
One back in September this year and one in 2021.
That's it. pic.twitter.com/ZkGYjlvOT4
— Mac10 (@SuburbanDrone) December 8, 2024
Option skew exceeding 170 is a rare occurrence, having happened only six times in history, with four of those instances occurring just last week. This indicates a significant level of market volatility and uncertainty. Option skew measures the difference in implied volatility between out-of-the-money (OTM) and at-the-money (ATM) options, and a high skew suggests that investors are expecting large downward moves in the underlying asset.
This recent spike in option skew is a clear sign of heightened market anxiety. Investors are bracing for potential market downturns, and this is reflected in the increased cost of OTM put options. Such extreme levels of skew are typically seen during periods of economic instability or major geopolitical events.
The implications of this are concerning. High option skew can lead to increased costs for hedging strategies, making it more expensive for investors to protect their portfolios against potential losses. This can have a ripple effect across the financial markets, affecting everything from individual investment strategies to broader market sentiment.
One wonders if (put) skew is merely representing the downside risk of this call option speculative orgy. Or if someone actually knows "something" is about to take place this week. pic.twitter.com/XMLRgvZYh6
— Mac10 (@SuburbanDrone) December 8, 2024
The UST 2Y yield has reversed its post-election gains. pic.twitter.com/Z4M4fDQTdP
— Ayesha Tariq, CFA (@AyeshaTariq) December 9, 2024
Sources:
https://www.optionistics.com/quotes/option-prices