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Market Measures

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All About Skew

Market Measures

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The CBOE Skew Index gives an indication of the probability of outlier moves in the SPX. Since it’s an index we cannot trade it directly, but does it provide any use in predicting SPX or VIX changes?

The Study:
  • 1990 to Present
  • Analyzed daily SKEW
  • Bucketed SKEW values into quartiles
  • Analyzed moves in SPX and VIX
    • 1 Week Prior
    • 1 Week After
    • 2 Weeks After
    • 1 Month After

There does not appear to be a clear relationship between the level of SKEW and movements in either SPX or the VIX. Instead, the relationship appears mostly random. Rather than use SKEW to determine trade entry signal, we can use other metrics like VIX and Implied Volatility Rank.

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