Volatility Skew
The pattern that out-of-the-money puts trade at higher implied vol than equivalent OTM calls — pricing the demand for crash protection.
Definition
Skew measures the difference in implied vol across strikes at the same maturity. In equity indices, downside puts almost always trade richer than upside calls, reflecting persistent demand for hedges. The SKEW index quantifies this for SPX.
Steep skew = high crash insurance demand. Flat skew = complacency.
Why it matters
Skew is a hidden positioning indicator. Sudden flattening often precedes risk-off; sudden steepening often marks late-cycle stress.
Worked example
Early 2018: SPX skew flattened to multi-year lows alongside record-low VIX. The February vol-pocalypse followed weeks later, with XIV blowing up.
Frequently asked
Why is equity skew so steep?⌄
Do other asset classes have skew?⌄
What's the SKEW index?⌄
How do you trade skew?⌄
Related terms
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