What it means
After the 1987 crash, the curve of S&P 500 implied volatilities lost its symmetry and tilted toward the put side. Investors pay up for low-strike protection, and that tilt carries information about how the market prices crash risk.
The Cboe built SKEW to quantify it, as a global, strike-independent measure of the slope of that implied volatility curve that rises as the curve steepens. The index starts from S, the market price of a skewness payoff on 30-day S&P 500 returns, computed from a portfolio of options in a manner analogous to the VIX calculation.
Because S is negative and varies in a narrow band, Cboe transforms it linearly: SKEW = 100 - 10 x S. The result rises as perceived tail risk grows.
Cboe's white paper gives the reading key. When SKEW equals 100, the implied distribution of S&P 500 log-returns is normal, with a 2.3% risk-adjusted probability of a return two standard deviations below the mean.
As SKEW rises toward 145, that probability rises toward 14.45%, and the three-standard-deviation probability rises from 0.15% toward 2.81%. SKEW and VIX answer different questions.
VIX summarises how far returns are expected to stray on either side of the mean, while SKEW adds a second layer: how asymmetric that expectation is on the downside. A high SKEW can occur with either a low or a high VIX.
The index is a sentiment gauge, not a crash clock, since analysis of large one-day declines since 1990 found that none were preceded by a SKEW reading in the top 5% of its historical range. When actual tail risk arrived, SKEW had not flagged it.
Traders still watch it for the price of protection, because a rising SKEW means downside insurance is getting more expensive relative to upside participation, which matters for hedging cost even if no crash follows. Cboe derives S from near- and next-term options and interpolates to a constant 30-day horizon, mirroring the contract selection used for VIX.
The published value updates as option prices move through the trading day. Users should read the level in context, alongside VIX and their own horizon, rather than treating any threshold as a signal.
In practice
Real-world examples.
Example
A fictional risk desk sees SKEW rise from 110 to 130 while VIX stays flat. The price of far downside protection is rising even though overall expected volatility is unchanged. The desk reviews its hedging budget and compares the cost of protection with last month.
Example
A fictional commentator calls SKEW at 140 a crash warning. The historical record shows large declines have occurred without elevated SKEW, so the reading is context, not a forecast. A careful analyst would describe it as a measure of the price of protection.
Example
A fictional hedger compares quarters. At SKEW 100 the white paper implies about a 2.3% chance of a two-standard-deviation down month; at 145 that risk-adjusted probability is about 14.45%. She notes that these are risk-adjusted figures built from option prices, not forecasts of what will happen.
Formula
Calculation
SKEW = 100 - 10 x S, where S is the market price of a 30-day S&P 500 skewness payoff derived from option prices. If S = -2.0, then SKEW = 100 - 10 x (-2.0) = 120.
Rearranged, S = (100 - SKEW) / 10. A published SKEW of 145 therefore implies S = (100 - 145) / 10 = -4.5, and a SKEW of 100 implies S = 0. A move in S from -2.0 to -3.5 lifts SKEW from 120 to 100 - 10 x (-3.5) = 135.
Illustrative reading: at SKEW 100 the distribution is normal; at 120 the implied downside tail is fatter than normal. Values are from the Cboe definition; actual S comes from the exchange's option portfolio calculation.Case study
Seen in the real world.
This case study is fictional and illustrative. A fund manager notices SKEW at 145 and considers buying far out-of-the-money puts ahead of a feared crash. Reviewing the evidence, she finds that past crashes were not preceded by extreme SKEW values, and that at 145 the white paper's risk-adjusted two-standard-deviation probability is about 14.45% rather than a near certainty. She sizes a smaller hedge based on hedging cost, not fear.
SKEW informs how much protection costs; it does not tell her when a crash will come. Her risk committee asks for a one-page note showing SKEW beside VIX and the cost of the proposed hedge, so that the decision is based on price and portfolio exposure. The fund manager and her portfolio are invented for illustration.
Watch out
Common mistakes.
- Treating a high SKEW reading as a prediction that a crash is imminent.
- Reading SKEW without VIX; the index measures asymmetry, not overall volatility.
- Assuming SKEW below 100 means no downside risk; the scale centres on 100 for a normal distribution, and risk never vanishes.
Questions
People also ask.
What does a SKEW value of 100 mean?
The implied distribution of S&P 500 returns is normal, with a 2.3% risk-adjusted probability of a two-standard-deviation down move over 30 days.
How is SKEW different from VIX?
VIX measures expected volatility on both sides; SKEW measures how much the market prices extreme downside moves specifically.
Does high SKEW predict crashes?
No. Historical analysis found major declines were not preceded by extreme SKEW readings; it reflects the price of protection, not a forecast.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%