Why Options Traders Think Stocks ONLY Go Up Right Now
Why It Matters
An inverted skew signals a market over‑weighted on upside bets, raising the risk of a sharp pullback that could catch unprepared traders off‑guard.
Key Takeaways
- •Inverted skew shows call vol higher than put vol across many stocks.
- •40% of liquid stocks displayed upside skew during COVID, tech 55%.
- •Energy and materials sectors also exhibit strong upside skew, unlike financials.
- •Upside skew signals speculative, frothy market that may not persist.
- •Traders should monitor skew metrics to gauge bullish excess and risk.
Summary
The video explains why options traders are seeing an "inverted skew"—a condition where call‑option volatilities exceed put‑option volatilities for comparable deltas—suggesting the market is pricing a higher probability of upside moves than downside corrections. This phenomenon is unusual because traditional skew typically reflects a downside tail risk. During the COVID‑19 rally, about 40% of liquid stocks showed this upside‑skew, spiking to roughly 55% among technology names. Energy and materials sectors mirrored the pattern, while financials lagged. The speaker tracks these metrics sector‑by‑sector, noting that the upside bias aligns with expectations of higher energy prices and strong tech earnings. A memorable exchange with colleague Mandy Zoo underscores the sentiment: "What do you expect? The market only goes up." The host describes the current environment as "frothy"—a speculative bubble that may not endure, warning that such extreme skew rarely lasts. For investors, the upside skew serves as a red flag of excessive bullishness. Monitoring skew can help gauge when market optimism turns irrational, prompting risk‑adjusted positioning before a potential correction.
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