The "right" way to read skew

Someone in the community asked me if there's a rule of thumb for normalizing skew data.

Honest answer: no.

In FX they normalize by at-the-money vol. On the equity index desks I sat on, we used absolute terms. Other shops do it differently again. Everyone's "right."

And that's sort of the point.

I've watched traders spend months hunting for the theoretically correct way to measure a vol surface. The right formula. The right normalization. The right paper to cite.

Meanwhile the person sitting next to them is using something rougher (back of the envelope), putting on risk, and banking P&L.

The data is there to guide you. If a particular way of looking at skew helps you find trades and manage your book, that's the right way. For you.

The only peer review your method needs is your P&L statement.

Trading is full of discretion. A million ways to read the same data. The skill is figuring out which lens helps you make decisions, then being intellectually honest about whether those decisions are working.

Small incremental improvements to your process. That's the whole game.

What helps you make money beats what's theoretically correct. Every single time.