CBOE SKEW Index Hits 146.08 – Highest Value Since 1998 Shows Demand for Portfolio Protection

In a recent column on Bloomberg.com, Callie Bost wrote —

“After three years of non-stop gains in the U.S. stock market, investors are loading up on insurance at the first sign of trouble. … Concern that the losses will worsen has increased demand for shorter-dated, out-of-the-money options designed to protect a portfolio’s value. The Chicago Board Options Exchange’s SKEW Index, which tracks expectations for an outsized drop in U.S. stocks known as tail risk, reached 146.08 Sept. 19, the highest level since October 1998. … The gauge has averaged 129.77 over the past 12 months, compared with a mean of 122.82 during the past five years …”


Here are line charts with comparisons of daily closing values for the CBOE SKEW and VIX indexes since 1990 and in 2014.mm 1 SKEW  VIX since 1990

I recently attended the Morningstar ETFs conference, and keynote speaker Russ Koesterich of Blackrock noted that –

  • It is difficult to find attractively priced “traditional” assets;
  • Even though geopolitical risk is up, volatility can be attractively priced, and volatility is an asset class.

Some observers recently have asked if the CBOE Volatility Index® (VIX®) has been somewhat low in 2014 considering the level of worldwide geopolitical uncertainties and nervousness in 2014. So far in 2014, the average daily closing values were 13.5 for the VIX Index, 10.2 for the (30-trading-day) historic volatility of the S&P 500 Index, and 130 for the SKEW Index. During the years 1990 through 2013, the average daily closing values were 20.2 for VIX and 117.2 for SKEW.  So while the VIX recently has been below its long-term average, it is worth noting that the historic volatility of the SPX usually has been even lower than the VIX, and in 2014 the SKEW Index has been about 13 points above its long-term average. So in 2014 one might infer that the demand for out-of-the-money SPX puts (and disaster insurance) probably has increased relative to demand for at-the-money SPX options.

 mm 2 SKEW  VIX in 2014







CBOE 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. The value of SKEW increases with the expected tail risk of S&P 500 returns. If there were no tail risk expectations and concerns, SKEW would be close to 100.


The historical data set for the CBOE SKEW Index begins in January 1990.  Below is a list with the twelve days with the highest closing values for SKEW.  Note that 8 of the 12 days occurred in 2014.

16-Oct-1998   146.22
19-Sep-2014   146.08
20-Jun-2014   143.26
20-Dec-2013   143.20
21-Jun-1990   142.57
_3-Jul-2014    142.28
18-Sep-2014   142.10
16-Mar-2006   142.02
18-Jul-2014    141.19
_2-Jul-2014    140.37
14-Jul-2014    139.94
22-Sep-2014   139.85


For this volatility skew chart comparing the implied volatility for AAPL, USO, and SPX, note that the slope of the curve is much more pronounced for SPX.  This volatility skew chart can be an important tool for investors who are considering options buying or selling strategies at various strike prices.

mm 3 Vol Skew

To learn more about the SKEW and VIX indexes, please visit www.cboe.com/volatility.