Two under-the-hood metrics I track on single stocks

Here are two under-the-hood metrics I lean on every day when I look at a single stock.

First, fixed-strike vol on the current at-the-money option. I track how it's behaved over the last two weeks. Think of it as a read on supply and demand for gamma in the name. If fixed-strike vol is grinding higher, demand for gamma is outstripping supply. If it's drifting lower, the street is well-supplied and selling premium.

Second, 25-delta skew. This measures which side of the distribution is getting bid or offered for the OTM options. Call skew rising shows me rising demand for calls. Put skew rising tells me protection is being sought. Together with fixed-strike vol, you get a picture of where the flow is concentrating.

Anyone seen MU lately?

Fixed-strike vol on the front ATM has been bid, skew has rotated dramatically into call, and the surface is shouting at you. That's the kind of read these two metrics give you on any single name once you know what to look for. Worth pulling up MU on a vol surface and looking at the last two weeks of fixed-strike vol and skew. The setup was to either play for a break or certainly stay out the way.  

The two metrics don't have to follow any strict relationship. Skew can shift without fixed-strike vol moving much, and fixed-strike vol can jump without skew rotating. Both are signals on their own.

What these give you that a price chart doesn't is the footprint of the flow. Options flow is exploding right now, and most of it doesn't show up in a candle. The surface tells you what the tape can't.  Just another part of the market puzzle.

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