What is SKEW?
The CBOE Skew Index- indicator measures perceived tail risk of the distribution of SPX log returns at a 30-day horizon
Tail risk is the risk associated with an increase in the probability of outlier returns, 2 or more std below the mean. market crash or black swan?
The CBOE Skew Index- indicator measures perceived tail risk of the distribution of SPX log returns at a 30-day horizon
Tail risk is the risk associated with an increase in the probability of outlier returns, 2 or more std below the mean. market crash or black swan?
The value of SKEW increases with the tail risk of $SPX returns.
When there is no left tail risk, SKEW is equal to 100
Historically, SKEW has varied in a range of 100 to 150 around an average value of 115
When there is no left tail risk, SKEW is equal to 100
Historically, SKEW has varied in a range of 100 to 150 around an average value of 115
SKEW & VIX are different & complementary measures of the risk of 30d SPX returns
VIX is a close proxy for the std of those returns. The
std describes the avg spread around its mean
SKEW describes the tail risk of the distribution. The daily
values of SKEW & VIX are uncorrelated
VIX is a close proxy for the std of those returns. The
std describes the avg spread around its mean
SKEW describes the tail risk of the distribution. The daily
values of SKEW & VIX are uncorrelated
Like $VIX, the $SKEW index also has term-structure, measuring the skew over different expiration months.
Usually, the $SKEW term-structure exhibits Contango TS, meaning the skew is higher in the longer-term expiration months.
Usually, the $SKEW term-structure exhibits Contango TS, meaning the skew is higher in the longer-term expiration months.
So, monitoring the $SKEW index TS is very important on a daily basis on estimating the perceived left-tail risks among different expiration months from $SPX options positioning
When $VIX trending lower, while $SKEW trending higher, time to monitor other cross-asset Jaws for conf
When $VIX trending lower, while $SKEW trending higher, time to monitor other cross-asset Jaws for conf
Below I depicted the $SKEW term-structure over time, so one can easily see the SKEW trend as well as the SKEW term-structure trend over time.
April 27 to May 29 (top row)
one can monitor the SKEW trend for 4 expiration months: June, July, Aug & Sep
The graph is for May 29 close
April 27 to May 29 (top row)
one can monitor the SKEW trend for 4 expiration months: June, July, Aug & Sep
The graph is for May 29 close
From the $SPX options player, they priced in huge "left tail risk" in September expiration:
$SKEW for Sep = 146.36 9 (Almost 150) and trending higher from May 15, while $VIX trending lower.
Warning.
Monitor this closely.
$SKEW for Sep = 146.36 9 (Almost 150) and trending higher from May 15, while $VIX trending lower.
Warning.
Monitor this closely.
In case you haven't noticed
CBOE $SKEW index was included in below table
The last row, 30-day SKEW index, calculated from the two nearest expiration month: June expiry & July expiry.
So, it is somewhere between the June SKEW and July SKEW numbers from above chart/table.
CBOE $SKEW index was included in below table
The last row, 30-day SKEW index, calculated from the two nearest expiration month: June expiry & July expiry.
So, it is somewhere between the June SKEW and July SKEW numbers from above chart/table.
