Options Bootcamp 32: Volatility and Skew

Basic Training: Let's talk fundamentals

• What is Implied Volatility and how it is derived? Why is understanding implied volatility is so important?
• Historical volatility versus implied volatility.
• What is skew? Why does skew exist?
• What is the put wing? What is the call wing?
• What is investment skew? What are other types of skew?
• #1 Options question from newcomers - I bought a call option then the stock rallied and my call lost value. Why?
• How do you evaluate skew? How is skew measured?
• What is reverse skew? What does reverse skew sometimes indicate?
• What is term structure?

Mail Call: You have questions. We have answers.

• Question from Nick D. - I am a covered call seller. I have some people recommend that I should sell in-the-money covered calls instead of my usual 5%-10% out-of-the-money calls because of volatility. But why would I want to sell a call that is going to inevitably be called away? What is your thought on this strategy?
• Question from Charles Midler, Santa Fe, NM - I am thinking about hedging my short stock positions with short put positions. How do the drill instructors view this strategy? Am I on the right track? Can John discuss the margin requirements of such a strategy?
• Question from Nomad 6 - What are flex options?