Use Cases

MSFT (Microsoft) earnings in two days, option market is implying a +/- 5.37% move after earnings release. 

1. Traders can buy call/put with maturity right after earnings date if traders have bullish/bearish view on earnings and expect the MSFT move more than 5.37%.

2. Traders can buy both call and put with maturity right after earnings date if traders expect MSFT to move more than 5.37% (either up or down) upon earnings release, vice versa.

FXI (iShares China Large-Cap ETF) short-dated vol was at elevated level, while skew was at cheap level as of 25Oct24, i.e. demand on OTM call buying is far more than demand on put buying. Market is expecting volatility in short term, with strong bullish sentiment.

SPY (S&P 500 ETF) short dated vol and skew were both at elevated level as of 25Oct24. Time series plots show ATM vol and skew both picked up in recent weeks. This is mainly because of strong put buying demand for protection ahead of US elections. 

For bullish traders/investors - Consider selling short-dated put to take advantage of expensive vol and skew.

For protection buyers - Consider buying put spread (buy OTM put, sell more OTM put), to take advantage of expensive skew by selling far OTM put to finance the cost of buying near the money put.