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Micron and SanDisk Fell 30%. The Options Skew Says How to Trade It.
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ticker lesson
Breakdown
0:00SMH· ticker
SMH — broad exposure to semis, 75-100 implied volatility
- Memory stocks down 30% from highs
- SMH holds SanDisk, Micron
- Implied volatility 75-100 points
- Realized volatility 660-560
2:04Micron· ticker
Micron — 100% implied volatility, $800 product
- Implied volatility 96-100%
- Options require large accounts
- Call skew at 1040 strike
- 100-point out-of-the-money skew
4:08SanDisk· ticker
SanDisk — $1,400 product, 100% implied volatility
- Implied volatility 137%
- Call skew at 1,800 strike
- 500-point expected move
- 100-point out-of-the-money skew
6:10lesson
Options strategies: SMH vs single-name stocks
- SMH offers lower volatility
- Calendar/spreads preferred for single names
- SMH reduces buying power needs
- Broad exposure at lower cost
8:00SMH· ticker
SMH — flat skew, 65-point out-of-the-money
- No put/call skew at 65-point strikes
- Neutral curve after 2-week move
- Realized volatility 60-point swings
- Flat distribution at 500/630 strikes
8:01Micron· ticker
Micron — call skew at 640/1040 strikes
- Call skew 200-point out-of-the-money
- 1040 call trades $2,500 more than 640
- 100-point out-of-the-money skew
- 940 call trades more than 740
8:02lesson
Skew exploitation: cost basis reduction
- Sell skewed options for cost basis
- Call diagonal spreads reduce debit
- SMH has no skew for bearish trades
- Single names have call skew for bullish trades
8:03SMH· ticker
SMH — downside cost basis, lower volatility
- No skew for bearish trades
- Lower implied volatility than single names
- Stability vs single-name volatility
- 400-point out-of-the-money calls
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