Skew is storing energy
Hey,
So, everyone wants to sell premium right now. I get it — vol is elevated, theta looks fat.
But skew is telling you something.
When skew is this high, it's storing energy. That energy releases as either a violent rally when hedges get unwound, or a nasty selloff where the street flips net short vol on the way down.
Naked short gamma sits in the blast zone of both.
You can still earn decay though. Use calendars.
Own next week's options. Sell this week's against them. Your short leg earns theta daily. Your long leg is backed by vol that the market keeps bidding up — because the tail risk isn't a one-day event.
If the risk persists beyond this week, so does the vol premium protecting your position. That's your backstop.
You're not betting skew is wrong. You're using the term structure of risk to your advantage as people normally panic buy the front end.
Selling naked premium in a high-skew regime is selling insurance with no reinsurance. Calendars are the reinsurance.
Structure must match view + vol regime. Right now, that means calendars over naked shorts.
Volatility first.
Imran
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