Similar to VIX, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the skew.
Look how the gaps and candlestick patterns are much more pronounced when comparing Skew/Vix vs SPX
CoinedByCrypto
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How du U interpreted the chat with Skew and Vix making patterns all over the place ? (Last grey box?)
CoinedByCrypto
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Chart*
CoinedByCrypto
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A signal of market being indecisive?
QuantitativeExhaustion
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Looks similar to end of June, but even much more uncertainty. If we see something gap up or green above previous candle high, I'd say stick trend higher. If opposite then we have a top and a reversal is on it's way.
CoinedByCrypto
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Yes I agree! It seems like skew and vix together are more volatile at top of a runs than at the bottom....
QuantitativeExhaustion
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That makes sense.
CoinedByCrypto
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But what a great tool U've found ;).... another piece of the puzzle definitely giving .....an edge. Thx!
QuantitativeExhaustion
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Sure is, I'm going to use it. Thanks for the comments, made me think outside the box and create this comparison.
Look how the gaps and candlestick patterns are much more pronounced when comparing Skew/Vix vs SPX