The S&P 500 volatility smile is a smirk where out-of-the-money puts are more expensive than out-of-the-money calls, reflecting fear of downside shocks. Commodities have a mirrored smirk, with more expensive out-of-the-money calls, indicating fear of upside shocks (e.g., a war disrupting oil supply).
This video explains how to price Bitcoin and other crypto assets using options market data. The speaker, a former Wall Street options market maker and quantitative researcher, argues against blindly following speculative predictions and emphasizes the importance of analyzing market data for informed decision-making. He highlights the options market as the most efficient source of pricing information.
The S&P 500 volatility smile is often described as a "volatility smirk," shaped like a mirrored Nike check. Out-of-the-money puts are much higher than out-of-the-money calls. This reflects the market's expectation of slow, steady growth (earnings slowly going up) with occasional sharp downward shocks caused by negative surprises (like tariffs) that lower future earnings expectations.
The speaker believes the options market provides the most useful information because it's a global, freely accessible market where anyone can trade. The resulting price (whether it's the volatility smile, implied volatility, or the underlying asset price) always settles where supply and demand meet most closely, reflecting the collective assessment of the most well-informed and deep-pocketed market participants.
The speaker uses the example of election betting odds. He argues that these odds are better predictors of election outcomes than polls because they reflect the actions (betting behavior) of informed participants, unlike the potentially biased words of pollsters or politicians. Similarly, he cites the example of Nancy Pelosi's personal portfolio choices (buying Pfizer stock) as contrasting with her public statements.
