Comparing Volatility Skew and CBOE’s Volatility Indexes

How does 30-day implied volatility at various strike prices compare to related volatility indexes?  This Blog provides a brief overview of some sample data and graphs on this topic.

The methodology for the CBOE Volatility Index® (VIX®) uses near-term and next-term out-of-the money SPX options with at least 8 days left to expiration, and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.  CBOE now offers more than 20 volatility indexes that are designed to provide measures of expected 30-day volatility of various securities.   In the July 16 Striking Price column at, Bill Luby wrote –

“ … investors should be taking advantage of a new generation of volatility indexes to better gauge risk across the full spectrum of investments. … A broad-based approach to risk has proved to be even more important over the past year or so, as deviations across these varied measures of risk have increased dramatically. … . Even if one chooses not to trade the divergence, it is important to understand the early warning system that a broad basket of volatility indexes can provide.”


While the volatility indexes are great gauges for showing intraday and long-term changes in expected volatility, the volatility indexes often can be somewhat higher or lower than implied volatility at various strike prices.  Below are three sets of graphs reflecting closing values on July 17th (which fortuitously was 30 days prior to the upcoming August 16th expiration Friday).  On the left side are line graphs showing 30-day implied volatility estimates at different moneyness levels, and on the right side are tables showing the closing values of related volatility indexes. Bloomberg provides this definition for the “moneyness” of an option – “it is calculated as % (x/s), where S is the spot and X the strike.”

Note that many of the line graphs below have the shape of a volatility smile or a smirk, and that the slope of the lines can differ.  The implied volatility for options at 90% moneyness is greater than the implied volatility for the (at-the-money) options at 100% moneyness in all the charts below; for the SPX, the implied vol at 90% moneyness is 36% higher than at 100% moneyness, while for AMZN, the implied vol at 90% moneyness is only 10% higher than at 100% moneyness. One explanation for the steepness of the SPX line chart is the fact that after the 1987 stock market crash, many investors had heightened concern about left tail risk and there is great demand for O-T-M protective SPX put options as hedging instruments, even if the implied volatility for OTM SPX puts is higher than recent SPX historic volatility and the implied volatility for ATM SPX puts.

In the charts below, the VIX closed at 13.78, while the 30-day implied volatility for SPX options ranged from 11.2 to 18.9 at various strike prices from 90% moneyness to 110% moneyness.

To read more about this topic, please click on the slide presentation on Equity Related Volatility Skew by Natenberg and Weithers that was delivered at a CBOE Risk Management Conference.

13-Vol Skew SLV EEM RUT 12-Vol Skew AMZN USO NDX 11-Vol Skew AAPL GLD SPX


On July 17th the CBOE Skew Index (SKEW) closed at 115.27 (which was below its long-term average of 117.02).  SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.


For more information, data and a bibliography, please visit