← AdvancedLesson 12 · 4:30
How does skew move in a sell-off?
Summary
You can describe sticky strike and sticky delta as two models of how the skew moves when the index falls, and add the jump in the whole level that real falls showed. You can work out what each does to a sold far put and to a put spread.
Key terms
- sticky strike
- A model where each strike keeps its volatility as the index moves, so the skew line stays still.
- sticky delta
- A model where the whole skew line slides with the index, so options the same distance away keep their volatility.
- volatility level jump
- A rise in implied volatility at every strike at once, as seen in real sell-offs.
Check yourself
Answer each question to see why the right answer is right.
1. In the sticky strike model, what happens when the index falls 5%?
2. In the sticky delta model, what happens to the SPX 7,000 put after the 5% fall?
3. In the real fall of July to August 2024, the index lost more than 8% and the VIX went from about 13 to almost 39. What did this add to the two models?
4. You sold the XYZ $85 put for $33. XYZ falls to $95. Which picture hurts you most?
5. You sell the $95 put and buy the $85 put for a $136 credit. With the same fall and jump, the spread is down $174, not the $288 the sold $95 put lost alone. Why?
Finished the video and the quiz? .