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Strategies & Market Trends : Classic TA Workplace
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To: Shack who wrote (125555)10/29/2005 2:33:48 PM
From: Win-Lose-Draw  Read Replies (5) of 209892
 
One way to get a handle on the sentiment is to look at IV skews. Using Dow ETF, for instance, the underlying is right around 104. Going 4 strikes upwards on December expiries, calls are @ 0.40. Going 4 strikes downwards, puts equally OTM are @ 0.85. Adjusting for a risk-free rate of, say, 3%, that gives IV of 11% for the OTM call vs 16% for the OTM put.

That...is a substantial skew and indicative of a strong bearish bias. It's not quite as strong as it was at the '02 low, but then again, how many '02 lows are we likely to see in one lifetime. :)

Someone comfortable managing their exposure/margin could try and take advantage of this with a synthetic long made from buying the low-IV call and selling the high-IV put.
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