The SKEW index is a measurement of the perceived tail-risk in the market and it is also a proxy of the steepness of the volatility "smile." The steepening of the volatility smile can push up the skew index.
Today, tastytrade examines extreme skew on the performance of short positions. The historical mean of the skew index is 118 and its standard deviation is 6. So, a 130 skew index is two standard deviations from its mean, and generally, we can conclude the 130 or higher skew index as an extreme.
The average P/L and success rate of selling a 16 delta 45 DTE put on SPY when skew is greater than 130 or 140 are much higher than the average P/L of all markets
Therefore, extreme peaks in the skew index and the steepening of the volatility smile can be utilized by selling OTM puts or put ratios.
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