Trading Volatility 6: Skew and Term Structure Strategies

This episode explores the intricacies of volatility surfaces in equity markets, focusing on skew and term structure. It details the relationship between these two components, showing how they're linked through factors like market declines and implied correlation. Various models are presented to explain volatility surface movements, including sticky strike, sticky local volatility, and jumpy volatility, each impacting skew trading profitability. Methods for measuring skew and understanding its dynamics are discussed, along with strategies for profiting from imbalances in term structure and skew using calendars and variance swaps. Finally, the text explains how to separate theta into gamma theta and skew theta to better understand skew trading costs and profitability.