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Embracing the Volatility Skew: A Golden Opportunity for Savvy Investors

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New member
Joined Jun 6, 2023
Messages 1
Hey fellow investors!
I wanted to share my recent experience with the volatility skew and how it has turned out to be a surprising blessing in disguise for me. Initially, I used to see it as a potential risk or obstacle, but now I view it as a fantastic opportunity.
The volatility skew, for those unfamiliar, refers to the uneven implied volatility levels among different options strikes. It typically occurs when out-of-the-money (OTM) options have higher implied volatility than in-the-money (ITM) options. At first, this might seem counterintuitive, but hear me out.
By recognizing and embracing the volatility skew, I've found a way to position myself advantageously in the options market. Rather than perceiving it as a barrier, I've discovered that it can provide a competitive edge when constructing my trading strategies.
One way I've utilized the volatility skew is by implementing vertical spreads. These strategies involve buying an option at a lower strike price and simultaneously selling an option at a higher strike price, both within the same underlying security and expiration date. By capitalizing on the skewed implied volatility, I've been able to construct these spreads with a more favorable risk-to-reward ratio.
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