Defining 4 Regimes

• Sticky delta

  Unrealistic over short and medium time frames (skew just floats with spot. Zero spot/vol correlation). Long skew trades are crushed as not only do you lose theta on premium skew, but the strikes vols can move against you on spot moves as your put becomes closer to ATM

• Sticky strike

Fixed strike vols (realistic in calm markets). Long skew trades punished because you pay theta for premium skew but do not get a re-marking of vols in your favor

• Sticky local vol

(Realistic hybrid) Skew floats along a vol path with spot/vol correlation. Skew theta is offset by re-marking of surface in your favor

• Jumpy vol

Panicked market condition where surface resets to higher level. Long skew trades heavily paid in this scenario.

Deltas vary by regime

Option deltas vary from B-S depending on regime.

Looking at common regimes:

• Sticky strike: Option deltas match B-S
• Sticky local vol: Option deltas are smaller than B-S as spot-vol correlations temper the floating skew. If you buy an ATM call you want to hedge on a light delta (aka lean long) so in a rally you mitigate the negative vega p/l you expect.