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...
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...
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...
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".
When the Skew index rises its an indicator of fear within the stock markets. Usually when the Skew hits $150 or higher investors should be very leary on what is to come. I fear a steep decline is coming very soon. Skew Index is a must in anyones watchlist right next to the VIX. Hope this finds you well.
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...
There's a disparity and an underlying bullish accumulation towards otm puts vs calls. Spread wise you can see call premium vs put premium making more sense to sell upside calls vs downside put spreads.this could be a reflection of earnings but could lead to a outsized distribution. Ie a volatility spike
Skew is the difference in spx iv of equal Delta. like call Delta 30 iv minus put Delta 30 iv. It shows how the oi chain is balanced and underlying psychology. Current rating of 132 I would deem caution. One of the things I look for when playing bearish is a rising skew but falling vvix. Rising skew= odds of an outstated move increase. Falling vvix premium of...