Chart Of The Day

CBOE SKEW Index Spikes to Bearish Levels

Throw this one in the “signs of frothiness” bin.  The CBOE’s SKEW Index attempts to measure the potential for an outlier event.  Readings at current levels are extremely unusual and consistent with a market that is susceptible to unusual events.  Here’s how the CBOE describes the index:

“The CBOE SKEW Index (“SKEW”) is an index derived from the price of S&P 500 tail risk. 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.”

And the visual via (via J. Lyons Fund Management):

skew (1)


* See more updated market and economic indicators here. 

Comments are closed.