The SKEW index is a measure of potential risk in financial markets. Much like the VIX index, the SKEW index can be a proxy for investor sentiment and volatility. The Skew Index measures perceived tail-risk in the S&P 500.
SKEW values generally range from 100 to 150 where the higher the rating, the higher the perceived tail risk and chance of a black swan event....
The SKEW has continued to go down reaching its historical lows of 2019. A low skew has virtually always been fairly strongly correlated with market bottoms. Many times the lows are put in before the SKEW bottoms. Although as it keeps going down the market can as well which has been occurring this year as since May the SKEW was certainly fairly low in the lower...
It looks like the SKEW is going to bottom now or soon. There is a loose correlation between the SKEW and the risk in the market with low skew reading being better times to buy and high skew readings the market has a higher risk of correcting.
Despite numerous mentions about the CBOE SKEW Index, we are no where near the 2018/2019 lows (which are the lowest readings on file for the past decade).
Understanding how SKEW Index works, it's relationship to Vol Structures, and impact towards Gamma & Vega and how/what it implies by way of Institutional Hedging is another tool for the pros.
Do your DD (due...
SKEW is probably a little less known in the world of volatility than for example the VIX, but essentially it is a measure of the implied volatility of OUT of the money options, as opposed to AT the money options on the market like the VIX.
I suppose it may be a better comparison to check SKEW vs the SPY, but I'm a NASDAQ guy so I wanted to have a look at this in...
Cem Karsan was on a vol podcast recently talking about the past week and what’s to come.
open.spotify.com
Of particular interest for me is the recent distribution of skew term structure into a market selloff.
The amount of skew there is and the amount of term structure is what drives an imbalance in delta effects.
The skew distribution into a decline is a very...
SKEW getting pretty stretch here. Well past my TRIM ZONE or an area when I start to reduce position size and considering protection. It can stay there for a while so no need to overreact, but something to be aware of.
vol skew measures otm premium demand vs atm demand. the scale goes from 100-150. today we saw history as it cracked outside that range due to a major offloading of hedge activity. just saying ive never seen anything like this. i wonder how many funds are short and how desperate they are to duck and cover?
SKEW index representing the degree of tail risk.
It is calculated by the Chicago Board of Options Exchange (CBOE) in the U.S.
It is an index of market skew.
Tail risk is a risk that has a very low probability of occurring, but if it does occur, a significant decline is expected.
In this section, we will predict the upward and downward direction of the SKEW...
Like last year the pro's buying protection while Joe Six Pack is selling vol on his Robin Hood account. You can't time when the real volatility kicks in but the signs are there. Would a Biden win be priced in and what would happen to markets when he wins? I would not be surprised that we would see at least a 50% correction when that happens. Time will tell watch...
I want to point out two things in this post:
1. The elevated implied volatility before earnings on blue chips stocks is per se a risk factor due to high call open interest and the following reduction in implied volatility post earnings.
2. The SKEW index is signaling increasing tail risk.
The first point:
As I’ve pointed out in recent posts, high open...
Skew index has been on the rise. Many refer to it as the "real fear" index, but that is wrong. Rising skew has very little to do with crashing equities. Skew rising is just pointing out the fact downside protection is rising on a relative basis. Given the fact the melt up has been rather brutal, skew "becomes bid automatically" as we "move along the vol curve".
The SKEW Index imho is a usefull indicator but the index does not provide you any timing on when to sell or to buy. I always look at divergence and this time the divergence is massive. So the pro's are buying protection (SKEW) while Joe 6 pack keeps buying stocks and is filled with FOMO (VIX)....Why make it difficult for yourself and do as the pro's are doing...
