Unit 1 · Level 3 · The volatility surface
Review: the map in your head
One unit, one object: the volatility surface. Skew tilts IV across strikes (crash memory since 1987), term structure bends it across time (event bumps, panic inversions), and IV rank tells you if today is rich or cheap versus the asset's own year. Let's make sure the map is burned in.
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What you get asked
Equity index puts trade richer than calls mostly because…
Skew is structural demand for crash insurance. The market learned that lesson on Black Monday 1987 and never forgot.
An IV bump at one specific expiry on the term structure usually marks a scheduled ___.
Earnings, central-bank meetings, big data prints: the expiry that must live through the event trades richer than its neighbors.
Match each concept to its dimension
Three tools, one object. If you can name where you are on the surface, you already think like a vol trader.
A stock's IV rank hits 90. The correct takeaway is…
Rank compares an asset to its own history only. Rich options are a fact; everything beyond that is your interpretation.
Before pros buy or sell any option, the surface answers one question first:
Every trade in the next unit starts from this question. You only have an edge when the surface's forecast disagrees with yours, and you turn out to be right. 🐜
The rest of this unit
Skew, term structure and IV rank: the 3D map every options pro trades from.