It’s no secret why people gravitate toward advanced services Barchart Premier It is to gain an edge in the market. Of course, the best benefit is the one that is impossible to get – a crystal ball that magically tells the future every time. However, a more real innovation is a category of insights called microstructure analysis.
One of the most important of these tools is the volatility skew. By definition, the implied volatility (IV) of the volatility skew identifies—or the range of potential movement of a stock—across the strike price spectrum of a given options range. Basically, this screener shows the distortion of the surface area of the volatility spot, allowing retail traders to understand how the smart money is positioning the risk profile.
Elevated spikes in skew curves indicate areas of vulnerability that smart money traders are concerned about; Specifically, they are willing to pay an additional premium for either downside protection or upside.
However, in the equity market, the transaction has two sides: a buyer and a seller. In other words, it’s not just sophisticated market participants who leave their trading signals. Traders must also keep their books balanced, which is known as staying delta neutral.
Because of this balancing act, retail traders can refer to the Barchart Gamma Exposure Screener. This tool measures the change in delta exposure for options based on changes in the underlying price. Essentially, the screener can be used to predict how a target stock’s holdings are changing based on changing market conditions.
When used in conjunction, both volatility skew and gamma exposure can help retail traders create smart, multi-leg options strategies.
Recently, Palo Alto Networks (PANW) issued a buy signal from Barchart’s Top Trading Alerts – and it’s a signal that appears to enjoy fundamental credibility. Given the current geopolitical crisis in Iran and the wider Middle East, cyber security is likely to be a hot topic. In addition, PANW stock has already fallen more than 16% in the past six months, making it perfect for a contrarian trade.
Despite the relative growth, the volatility skew for the May 15 date shows a net preference for risk protection. Towards the left-hand frontier (i.e. towards lower strike rates), the IV increases to approximately 243%. On the other end, both the IV reading and the call are relatively flat, suggesting little thought towards the above content.
