Introduction to SKEW Index
The Cboe SKEW Index (“SKEW”) is an index derived from the price of S&P 500 tail risk. It’s similar to Volatility Index (VIX).
The primary difference between the VIX and the SKEW is that the VIX is based upon implied volatility round the at-the-money (ATM) strike price while the SKEW considers implied volatility of out-of-the-money (OTM) strikes.
SKEW typically ranges from 100 to 150.
- The higher the rating, the higher the perceived tail risk and chance of a black swan event.
- A SKEW rating of 100 means the perceived distribution of S&P 500 returns is normal and, therefore, the probability of an outlier return is small.
Other concepts (for my poor memory)
Out of the Money (OTM) is an expression used to describe an option contract that only contains intrinsic value. These options will have a delta of less than 50.0.
At the money (ATM) is a situation where an option’s strike price is identical to the price of the underlying security.