Volatility skew implies gains are more likely than losses.
You have two hours.
You have two hours.
Thank you to 1,000 respondents for tolerating this strange, ambiguous poll.
There's a theoretical problem here. In the case of a skewed distribution, either the median or the mean can be zero, but not both.
Do options say the mean or median is zero?
There's a theoretical problem here. In the case of a skewed distribution, either the median or the mean can be zero, but not both.
Do options say the mean or median is zero?
Most respondents, by simply allowing that skew could *possibly* predict median gains, are saying that option prices are centered on a mean anticipated return rather than a median.
This means options are "implying" that index upside is always more likely. That's interesting.
This means options are "implying" that index upside is always more likely. That's interesting.
Alternately, if we say that option prices are centered on a median anticipated return, we imply that mean returns are always negative.
This is interesting because it explains, in a different light, how option markets are used to buy portfolio insurance, emphasizing that trait.
This is interesting because it explains, in a different light, how option markets are used to buy portfolio insurance, emphasizing that trait.
Genuinely wondering which “framework” people think makes more sense, or whether (and why) it’s a silly thing to wonder.
It's a lot easier to understand how options are priced if you're Kris. But in case you aren't, at least you can read what he said.
I think this is the winner.
I think this is the winner.
