
The financial markets at the dawn of 2025 present a mix of challenges and opportunities, offering investors valuable lessons in risk management and market dynamics. This blog explores critical insights shared in the latest Systematic Investors Series, touching on market skew, volatility structures, and the ongoing evolution of interest rate trends.
The Role of Skew in Market Dynamics
One of the central themes discussed is the importance of understanding skew in volatility markets. Skew, in the context of equity indices like the S&P 500, refers to the higher volatility typically associated with downside options compared to upside options. This dynamic reflects the market’s inherent demand for downside protection—a form of insurance against adverse price movements.
Long-Term Skew Trends
In recent months, skew has remained persistently steep, particularly in longer-term options. This stickiness indicates a structural imbalance in supply and demand, with significant implications for market behavior. The events leading up to this scenario—ranging from quarterly options expirations to the year-end structured product activity—exacerbated the disparity.
For instance, the August 2024 market decline was a pivotal moment. Although short-term skew experienced a rapid relief rally, long-term skew held firm. This divergence signals deep-seated concerns about sustained downside risks, as evidenced by
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