![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3wYGUh9MWQk3iqD9AiJc0WNkVpqZJTZOQ7FigvuPfJyISlIECacGOjzCA21SPl78S74NflrLBTMS4srX42RQr1iLg1aVjTHhFe1PiSvmsXcWd3CeyPKHd8ontZdbixhGscuFXKXzKS0c/s400/aapl_summary_3.gif)
Pre-earnings Vol Blog: HERE
Post-earnings Vol Blog: HERE
The news is out on the iPad and its pricing; the news is out on earnings as well. I have included the skew pre-earnings (with market dipping), post earnings and now after the iPad news. I find this progression an interesting study in the movement of the months relative to each other and the skew shape with impending news; I hope you do too. Click any image to enlarge it; note the movement of the front month(s) (red and yellow).
Skew legend:
Red - Front Month
Yellow - Second Month
Green - Third Month
Light Blue - Fourth Month
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigLsWFCAJXJYtejGOR4hha2RvR1BhWfv9aUoSrQOcCX0KrXF8em1Qbp2USCRW6G2qtrhGICjCdYJFTBfOCmiIEotQeYDh5fgxTpv8qInfheqFkn3C1wNsBZn7xgMa72vdsm61fiZ2bHzg/s400/aapl_skew_1-25.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYsA8T3zoHM19Huvb3g-yGzsV7QOWxD4x8Odn7o3jXlUfmh58ZBitPdfzl0nwIwZjg0PYAterGlhouGPFQbxj-a2W_z8RdLwQ7XuLqtwGefuKJowfvT7ueq88eD_uSw9d0DGPDgvME9JM/s400/aapl_skew_1-26.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNSZvxcMkEjqfJ-4NKCcPrLIFQVKSJFv5RLB5Fq4vQC8aWc19dcfTx-lB020VOTGKuOZuEDKf3dwWH79yFohyphenhyphenjdN3pBcrgYs_QA2Zq2caZBM6ZG_p2mVmRG5BX1QsyhkL0ZPYwKjGgjBA/s400/aapl_skew_127.gif)
As a volatility event approaches (earnings, news, etc) the month it occurs in naturally rises higher than others. It's simple math really - here's a contrived but illustrative example.
Say a stock has normal vol of 20 on a standard day. Say a vol event (FDA decision for a drug or earnings, or whatever) has a vol level of 150.
Say there are 10 days to front expo and the vol event is in five days. Then the front month vol will be an average of:
Front: 20, 20, 20, 20, 150, 20, 20, 20 ,20 20
Second: Front + 20, 20, 20, 20, ..... for 22 days.
Third: Front + Second + 20, 20, 20....
So they vol event is "diluted" by fewer "standard vol days" (20 in this case) in the closest month.
Technical detail: Note the term average is used loosely here as you cannot average standard deviations - you must square , then average then square root.
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