What Is the SKEW Index? Explained
Learn what the SKEW index measures: tail risk from S&P 500 option skew, 100 baseline math, VIX differences, and methodology limits.
Direct answer
The Cboe SKEW Index prices tail risk from S and P 500 option skew over thirty days, rising as crash protection grows expensive relative to the middle of the distribution. A 100 reading means near-symmetric pricing while higher readings mark fatter implied left tails. VIX measures overall volatility magnitude; SKEW measures how lopsided its fear runs.
Skewness math turns put prices into a fear gauge
The index starts from the statistical skewness of thirty-day log returns implied by S and P 500 options, then transforms it as 100 minus ten times that value for readability. Because market skewness runs negative, higher SKEW means more negative skew and richer crash protection. Out-of-the-money puts carry the signal; the middle of the distribution carries the baseline.
Implied volatility versus VIX separates index volatility from single-stock measures. Option vega quantifies the premium sensitivity that feeds both gauges.
100 means symmetry, higher means insured tails
At 100 the implied distribution looks roughly symmetric and tail hedges cost little extra. Readings in the 120s to 140s show meaningful crash pricing, while spikes mark episodes when protection demand overwhelms. The level describes insurance cost, never a forecast date; expensive hedges can stay expensive for months without any crash.
Volatility risk premium explained shows why protection usually costs extra. What is implied volatility grounds the absolute measure beneath the relative gauge.
VIX and SKEW answer different fear questions
VIX aggregates near-term volatility magnitude from a strip of options, rising with any large expected moves in either direction. SKEW isolates asymmetry, rising when downside protection specifically outprices the rest. High VIX with low SKEW means choppy but balanced expectations; low VIX with high SKEW means calm surfaces over bid crash hedges.
Vol of vol VVIX explained adds the volatility-of-volatility layer above both. Put-call ratio explained shows a positioning-based sentiment gauge for contrast.
Methodology limits every SKEW reading carries
The academic skewness definition can diverge from practitioner skew intuition, which is why Cboe consulted on shifting toward standardized delta-strike differentials or ratios with possible history recalculation. Any methodology change rewrites past readings, breaking naive backtests. Users should track which definition produced each print before comparing across years.
This guide explains index mechanics for education. It does not predict crashes, recommend hedges, or promise any gauge profits. Index methodology documents and personal trade records govern real use.
Common questions
What does SKEW 130 mean?
Substantially negative implied skewness with expensive crash protection relative to the distribution middle. It prices fear, not a forecast date.
How is SKEW different from VIX?
VIX aggregates expected movement size in either direction; SKEW isolates downside asymmetry. Either can run high while the other stays calm.
Can SKEW predict crashes?
No. Research links elevated tail pricing to later stress on average, but timing varies so widely that gauge-based market timing fails as a rule.
Why might SKEW methodology change?
The academic skewness definition diverges from practitioner skew intuition, so Cboe consulted on delta-strike differential or ratio methods with possible history recalculation.
Should traders hedge when SKEW spikes?
Only structures matching the priced fear earn their cost, and spikes can persist for months. Hedge the exposure, never the gauge reading alone.