A surge in put activity is not a directional call. It's evidence of a divided market — and that distinction changes everything about how you manage risk.

Blu Putnam & Brian Saldeen

We've all seen it. Put volumes spike, implied volatility skews hard to the downside, and the instinct is to read it as a signal — the market is bracing for a fall. That's the wrong read.

For every put buyer protecting a long book, there's a seller willing to write that insurance. The skew in implied volatility isn't a forecast. It's a price — the cost of risk management clearing a market where two very different futures are both being taken seriously

When that asymmetry becomes extreme, the right question isn't "which way does it break?" The right question is: what's my exposure to either outcome, and how do I size it?

"Elevated options activity on either side of the market reflects a divisive debate. Two distinct narratives, each with its own probability — and a hyper-alert for severe tail risk in either direction."

The 2025 tariff cycle made this starkly visible. Even as equity indexes climbed to new highs from May through August, our asymmetry indicators kept rising. The market wasn't bullish — it was climbing a wall of worry, buying the dips while simultaneously pricing real probability of a sharp reversal. By Q4, the implied distribution had shifted from fat-tailed to something closer to bi-modal: two futures, two narratives, one market.

That's a fundamentally different risk environment — and it calls for fundamentally different tools.

A note on calm markets:
When asymmetry is elevated, observed day-to-day volatility often falls — not because risk is lower, but because participants are only reacting to news that shifts the relative probability of the two competing narratives. Quantitative systems anchored to historical vol will understate the risk. Significantly.

How We Approach It
In this paper, we walk through a three-stage framework using S&P 500® index options as the case study — from quantifying the skew to identifying the competing narratives to deciding whether you're buying or selling volatility.

The Framework

1. Quantify the asymmetry
   Put/call IV skew ratios, volume trend analysis, and the caveats that matter — equity indexes are structurally put-skewed even in balanced markets. Knowing the baseline is the starting point.
2. Name the competing narratives
   Asymmetry is driven by real debates among participants. We identify the distinct scenarios, assess their plausibility, and form a view — with appropriate confidence levels.
3. Build the position
   Does the environment favor selling volatility to earn premium, or buying it to protect against fat tails in either direction? Straddles, strangles, and more complex multi-leg approaches — what they cost and when they make sense.

What the Full Paper Covers

• Why equity index skew is structurally misleading — and how to adjust for it when measuring true asymmetry
• The "calm before the storm" dynamic: how known-unknowns suppress realized vol and why that's a trap for historical-vol-based risk systems
• Brexit as a case study in bi-modal pricing — and what sterling's pre-referendum range was actually telling us
• Why stable correlation assumptions fail at exactly the wrong moment, and how to stress-test across structurally different scenarios
• Practical guidance on when to pay up for deep OTM strangles versus at-the-money straddles — and the risk tolerance math behind that choice

Read the Full Research Paper
Full methodology, charts, skew ratio data, and risk management frameworks from Putnam and Saldeen.
Download the Paper