Calculation and mechanics
The SKEW is derived from the prices of various SPX options and describes the asymmetry of the return distribution priced in by the option market. In the classic SKEW methodology a value of 100 stands for a symmetric distribution. Values above 100 show increasing negative skewness: the left tail of the distribution, meaning sharp declines, is weighted relatively more heavily.
The SKEW is not a direct forecast of the probability of a market crash. It is based on option prices and thus on a risk-neutral distribution that contains risk premia alongside market expectations.
Distinction
The VIX measures the size of the expected movement, the SKEW its asymmetry. A low VIX can therefore occur together with a high SKEW: the overall priced-in volatility can be low while protection against sharp declines remains relatively expensive.
The Expected Move in Foliograph, by contrast, describes a symmetric range of one standard deviation up and down and does not account for this asymmetry.
Sources
Related terms
- VIX (CBOE Volatility Index)
- VVIX (CBOE VIX of VIX, volatility of volatility)
- Expected Move (EM, one standard deviation move)
- Implied Volatility (IV)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.