Tail-Risk Hedges Spike To Record High

Tyler Durden's picture

While VIX declined last week, the cost of protecting against major market swings has spiked above its previous Brexit-vote-day peak, reaching a fresh all-time high.

As a reminder, CBOE explains, SKEW, is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew".

By way of example, Adam Johnson (@AJInsight) explains: "Investors are SO SCARED... They're paying 6x more for out-of-the-$ puts than calls $SPY 4-247c $0.09 $SPY 4-227p $0.55"

As Bloomberg reports, with the Federal Reserve raising borrowing costs and the political environment remaining uncertain, the CBOE SKEW Index climbed for five straight days, its longest streak since June 2016. The last time the gauge of out-of-the money S&P 500 Index options prices was as high relative to the volatility gauge, the VIX surged 65 percent in the next month.

Both of the previous two SKEW spike events (Brexit and 2015's Fed rate hike) saw a market plunge... immediately followed by a miraculous melt-up from coordinated global central bankers. With Trump in command, will those central bankers, led by The Fed, be quite so accomodating this time around?

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hedgeless_horseman's picture


Why would anyone want to hedge, when we have The Central Banks buying everything?

They can keep buying everything, forever, because they can create the money to buy everything simply with a few keystrokes.

It's Nirvana out there.

Dead Canary's picture

Well..well.. Gee Wally. It doesn't sound right some how.

Shut up  Beve.

Logan 5's picture
Logan 5 (not verified) chunga Mar 20, 2017 1:40 PM

"Tail-Risk Hedges Spike To Record High"


Especially, I'm told at the former Brando compound in Tahiti for the next month.



petar's picture

This is the applied political risk 

xythras's picture

The house always wins. Jew house in this case.

junius's picture

jealous of jews?  or jsut genetic anti-semite

Iconoclast421's picture

Unless they want the market to drop for political reasons.

Soul Glow's picture

Now that Rockefeller is dead, they can let the market crash.

Logan 5's picture
Logan 5 (not verified) Soul Glow Mar 20, 2017 1:41 PM

Now that the market is dead ~ they can let Rockefeller crash...

slightlyskeptical's picture

On a contarian basis that should be enough to ensure that the markets do not crash..

Bilderberg Member's picture

Historic fear without any market decline, We've finally conquered bear markets!

Yen Cross's picture

 Skew should correlate with breadth to some degee. The divergence with VIX and  falling breadth, implies VIX is cheap.

hedgeless_horseman's picture


I'm going to go out on a very short and stout limb, here, and propose that VIX is heavily manipulated by the Central Banks.

Call me crazy.

Logan 5's picture

I'm gonna go out on a limb and propose that central banks are run by & for jews

besnook's picture

the market just feels crashy for the first time in 8 years.

trouba z ceska's picture

I like Tyler's manipulative style. Look at the last paragraph. He impose that market plunge is given and the question now is whether central banks will save it again. What a brave heart to claim this while watching market indices turning from red to green again! :-)

Squids_In's picture

Long synthetic put = buy call and short the market. DUH!