Option Flow: Put Skew Dominates

In this week’s edition of Option Flows, Tony Stewart is commenting on the recent market movements.

Quarterly Mar expiry forced many terminal hedges to roll out to April. The maturity chosen for hedges/plays in this ME/Trump environment is critical.

Too short-term and it is often wasted premium, particularly with elevated fear/Put Skew.

Puts funded by Calls risk resolution.

More complex than the usual big picture, to slice out Mar27 expiry. What can be observed is some rotation out to April, and that the rotation still heavily favors Puts. April 60-64k Puts and 64/62k-55k Put spreads bought. Some outright, and some funded by Apr+May ~80k Calls.

Implied Vol normally trades at a premium, but the short-dated 7day is a little more elevated due to the global circumstances and uncertainty manifesting in demand for optionality.

The downside is that a higher short-term IV not realizing can be costly even if it allows sleep.

In volatile uncertain times, we normally expect to see the front end of the term-structure higher than the back end, implying a demand for gamma>vega.

But, as can be seen below, there is some exhaustion with very short-term gamma over the month, and a shift to 1month demand.

With increased tension, Put Skew is at its highest across the month of March.

There has been sufficient time for anyone that needed/wanted to protect or play the downside to position accordingly.

See original post on X here.

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