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Market Measures

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Short Premium and SKEW

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The CBOE SKEW Index measures the perceived likelihood of a 2+ Standard Deviation move in the S&P 500. Does SKEW have any effect on short premium trades? Tom and Tony discuss this interesting metric on today’s Market Measure!

When the SKEW index is high, it means that investors perceive there is a greater risk of outlier moves. The index becomes elevated by traders buying far out-of-the-money options. The SKEW index typically has a low correlation with the VIX and the SPY.

STUDY
  • Sold 16 Delta Strangles in varying SKEW environments. SKEW broken down into quartiles comparing average P/L, win ratios, and max losses for short premium trades
  • Managed Strangles at 50%
  • SPY from 2005 to Present

Be sure to tune in to hear Tom and Tony go over SKEW and it’s impacts on short premium trades!

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