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Historic Skew

Despite the fact that short term implied volatility has declined, longer term implied volatility has continued to hover at extreme levels.  Five year implied volatility is near 30%, but the more interesting phenomenon is the spread between 90% and 110% moneyness in longer tenors.  If we focus just on the 12-month S&P 500 skew, we are seeing a gap of nearly 7% in the 90/110 skew:

Extreme Put Premium

If we extend this chart to 2002, it almost appears that the premium on downside protection has been steadily increasing.  This could mean that selling puts is incredibly attractive or the markets are setting up for the great wealth reset.

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  1. Benjamin says

    Hi- What is your source for the 90/110 spread… is there a Bloomberg function for this? I would like to see further back as you suggest and see the longer-term trend. Thanks…
    -B

Continuing the Discussion

  1. Wednesday links: a much needed break | Abnormal Returns linked to this post on November 23, 2011

    […] Longer term implied volatility skew is still historically high.  (SurlyTrader) […]



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