Normal
IMO (and it is opinion) 2) is the overriding factor in this Fox. A 5% (or whatever) down day is far more likely than a 5% up day. The option pricing model does not know how to account for this this, so MM's crank up IVs a bit to reflect the risk.If you have a look at event sensitive commodity vols (gold oil, coffee etc), the skew is often to the upside.
IMO (and it is opinion) 2) is the overriding factor in this Fox. A 5% (or whatever) down day is far more likely than a 5% up day. The option pricing model does not know how to account for this this, so MM's crank up IVs a bit to reflect the risk.
If you have a look at event sensitive commodity vols (gold oil, coffee etc), the skew is often to the upside.
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