We recreated the CBOE SKEW index visualisation
Quick answer
The CBOE SKEW index measures perceived tail risk in the S&P 500 using the third moment (skewness) of the risk-neutral return distribution from options prices. A reading of 100 means normal distribution; above 130 signals significant tail risk. When SKEW rises but VIX stays low, the market is calm on the surface but buying insurance underneath.
What is the SKEW index?
The CBOE SKEW index measures the perceived tail risk of the S&P 500's return distribution. While the VIX tells you how much volatility the market expects, SKEW tells you how asymmetric that volatility is — specifically, how much more the market fears large downside moves versus large upside moves.
SKEW is derived from S&P 500 option prices across all strikes for the nearest two expiries. A normal distribution would produce a SKEW reading of 100. Readings above 100 indicate the market perceives more tail risk than normal — heavier left tails in the return distribution.
How SKEW is calculated
The SKEW index is based on the third moment (skewness) of the risk-neutral return distribution. It uses the same option prices that feed into VIX but focuses on the asymmetry rather than the level.
The formula aggregates the contribution of each OTM option to the overall skewness of the distribution. Deep OTM puts contribute to negative skewness (left tail risk), while deep OTM calls contribute to positive skewness (right tail risk).
Because institutional demand for protective puts typically exceeds demand for speculative calls, SKEW is almost always above 100 — the market always perceives some tail risk.
Reading SKEW signals
SKEW at 100-115: Normal range. The market perceives standard tail risk.
SKEW at 115-130: Elevated. The market is paying a premium for downside protection. Often seen before known risk events (FOMC, elections, earnings season).
SKEW above 130: High alert. The market perceives significant tail risk. Historically, sustained readings above 130 have preceded market drawdowns (though the timing can be imprecise).
SKEW divergence from VIX: When SKEW rises but VIX stays low, it suggests the market is calm on the surface but buying insurance underneath. This is the 'fear under the hood' signal that sophisticated investors watch.
The Quadesto interactive version
Our rebuild plots SKEW alongside the S&P 500, VIX, and optionally credit spreads on a single multi-panel chart. This makes the relationships visible: does elevated SKEW predict actual drawdowns? How does it relate to VIX spikes? The data tells the story.