The so-called Skew has touched a record. Should stock-market investors be anxious?
A popular options-market gauge of so-called black swan, or difficult to predict, events is drawing the attention of some bears on Wall Street as it trades at record levels.
The CBOE Skew Index , or simply Skew, which measures the relative cost of purchasing out-of-the money put options on the S&P 500 index , finished at a record of 153.34 on March 17 , and maintained that level on Monday. Put options confer the right, but not necessarily an obligation, to sell an asset at a specific price and time, while calls give the owner the right to buy an underlying asset (see chart below of the S&P 500 compared with Skew levels):
Skew essentially offers a way to gauge relative demand from investors interested in purchasing insurance–or hedging their equity exposures–against a possible downturn in the broader stock market. Put another way, Skew tracks bearish options bets on the S&P compared with bullish wagers of similar duration, and by some interpretations, investors are now aggressively betting that risks are growing.