A few slides illustrating the changes in volatility term structure since the April high of 1219 on the S&P and since a week before the spill in the Gulf.

1. Selling
elevated
volatility…
These are
some of the
highest
premiums
available
today, June
15th, 2010
Note: BP 30 day implied
volatility is 100. APC, RIG and
BP Vols are off in a group of
their own due to the Gulf leak.
Source: LiveVol http://www.livevol.com/

2. BP “a week before the leak”
Front month of May (and July) show elevated put skew due to dividends, but otherwise the surface
from front month to the Jan’12 leaps are flat.
30 Day Implied volatility is ~18, and while
puts are trading “rich” to calls, the curve or
volatility surface is fairly flat, with all
contracts below 50 volatility...
Source: LiveVol http://www.livevol.com/

3. BP “this week, still a leak” and a week of June expiration
Front month of June only had five trading days, so everything was priced to move. Skew across
Puts to calls is very obvious, but front to back, the surface points to more noise in the near term.
Now, 30 Day Implied vol is ~100, and there
is massive skew past July expiration. Note -
the best calls to write are June and July
relative to buying October and the leap calls.
Source: LiveVol http://www.livevol.com/

4. VIX “Skew” across time - the 4th and 5th dimensions
The volatility surface is rotated to better show the differences across time. Despite a spot VIX
in the mid teens, there was a contango to the low 20s from May into all months.
In April at the most recent peak of the S&P
500, December is expensive relative to 30
day levels suggesting more volatility ahead.
Dec’12 skew is fairly flat…
Source: LiveVol http://www.livevol.com/

5. VIX skew today, June 15th - More volatile times
A large put spread traded the week of expiration, so some market participants seem to expect
volatility to fall into the Summer, but stay above the teens seen in April.
Now, while very elevated, the drop from July
to December suggests front month volatility
will come down. Dec’12 skew steepened
significantly but should flatten with a market
rally.
Source: LiveVol http://www.livevol.com/