Skew By Delta

The Skew By Delta plot type allows you to visually chart an underlying’s call skew or put skew, independently, by either maturity or expiration. Skew by Delta can provide a good representation of the difference in an the money (ATM) option’s IV is priced in relation to an out of the money (OTM) option.

Open

Enter in a US or Canadian equity ticker or index symbol in the search for symbol box or used the symbol browser tree to search for your desired instrument. Note, IV Index data is only available for US and Canadian stocks and indexes that have listed options. Once the underlying is selected you will see the ticker display in the right side of the dialogue. To remove the symbol, simply click the 'x' to the right of the ticker.

Open

(Tip: When using the symbol tree, the Stocks → By Exchange, Index, Sector etc. branches have ‘Options’ leaves that only display underlying securities that have listed options)

Once the instrument is selected, select either call skew or put skew as the type of chart.

Once the type of skew is selected, you can then opt to plot the skew using either maturity or expiration via the tabs found below.

By Maturity

Using ‘By Maturity', you can plot any of the virtual option period's current and historical call skew or put skew. The default is set to the 30 day maturity using the 25 delta.

By clicking in either the ‘VI’ (volatility index) or the ‘Delta’ boxes you can create a skew and then click on the '+' button to add it as a new instrument to be plotted.

You can remove the default risk reversal or any newly created ones by clicking on the risk reversal name (green box containing the maturity and delta).

Once the desired skew(s) have been created, you can now select the ATM implied volatility input. When using call skews, the first option will be the 50 Delta call and when using put skews the this option will display as the 50 Delta put. For both call and put skew, the other option displayed will be the call/put average. This is the average of the 50 Delta call and put (essentially the stradde IV).

Once the calculation is set, opt to include the underlying’s total option volume or close or no additional data.

Once all parameters are set, click insert and view the skew by delta chart. In the example below, the 120 day 50 Delta - 10 Delta AAPL call skew is plotted with the the closing price.

By Expiration

Using the ‘By Expiration’ tab will allow you plot an underlying’s skew by delta chart using option expirations. When ‘Expiration’ is selected, a drop down menu will be available where you can select a desired monthly or weekly expiry. Multiple expirations can be individually selected or you can select ‘All’ for all expirations, ‘Monthly’ for all monthly expirations and ‘Weekly’ for all weekly expirations. Use clear to remove your selections.

Once the expiration(s) are selected, choose the desired skew by delta(s) to plot by clicking on the various deltas.

Next decide on the calculation method (50 delta call or put or the straddle IV) and then whether to overlay options volume or the closing price of the security.

Once all parameters are set, click Insert to view the chart in Excel. In the example below, AAPL’s 10/21/2022 25 delta, 35 delta and 45 delta IVs are spread against the 50 delta call and put mean.

Volatility Forecasting

In a general sense, equity and index markets tend to price OTM puts (in IV terms) higher than OTM calls (in IV terms) as more participates are long the underlying and look to use options to hedge downside losses. When looking at spreads (ATM - OTM IV levels), put spreads appear ‘cheaper’ as put skews tend to increase their slope the further away the strike or delta is. On the reverse, call spreads appear more ‘expensive’ (relative to puts) as IV has a tendency to appear flat or even display a decreasing slope the further away the strike or delta is from the ATM.