SKEW Index


The SKEW index is a measure of potential risk in financial markets. Much like the VIX index, the SKEW index can be a proxy for investor sentiment and volatility. 


The SKEW index is calculated using S&P 500 options that measure tail risk - returns two or more standard deviations from the mean - in S&P 500 returns over the next 30 days. SKEW values generally range from 100 to 150 where the higher the rating the higher the perceived tail risk and chance of a black swan event. A SKEW rating of 100 means the perceived distribution of S&P 500 returns is normal, and therefore the probability of an outlier return is small. 

However, in practice the SKEW index has been a poor indicator of stock market volatility. Financial writer Charlie Bilello observed data from the biggest 1-day falls in the S&P 500 and the SKEW index preceding these falls. "Going back to 1990, none of the worst declines had a SKEW Index in the prior month that was win the top 5% of historical values. So when actual tail risk was present, SKEW did not predict it," Bilello said. 

On March 21, 2017 the SKEW index reached an all-time high of 154, meaning the implied risk of a 2 or 3 standard deviation negative event had never been higher.