The CBOE SKEW Index measures the perceived likelihood of a 2+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 faroptions. The SKEW index typically has a low with the VIX and the SPY. STUDY
- Sold 16 Strangles in varying SKEW environments. SKEW broken down into quartiles comparing average P/L, win ratios, and max losses for short premium trades
- 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!