• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Are Your Investments Skewed?

Lots of people have been talking about the skew index, but what is it and why is it relevant?
By BOB LANG
Jun 28, 2021 | 11:00 AM EDT

 
We're hearing lots of talk recently about an arcane indicator called the skew index, which has been making noise with a sharp rise. Many have heard about the consequences of a high-skew level, but it's really a cause and effect situation. I've written about the topic several times over the past 10 years, let's review this tool so we do not become confused.
 
Skew bets are based on the "skewness" of options, or asymmetry vs. a normal distribution. Basically, if we look at a standard normal bell curve (you learned that from statistics class) there is a lean against one side or the other. When the data leans too hard the curve skews to that side (think of weight), and the apparent "skew" is one-sided the illusion is the probability is skewed toward the side with the heavier distribution.
 
 
 
What does this all mean and how does it relate to options trading? Simply put, when those trades or bets are lined up heavy, looking for the markets to get massacred, then we have good information about trader expectations and where the money is flowing. It is meaningful data to know a group of traders are making heavy bets against the market. These are low probability outcomes, but when there is a heavy lean to this bearish side it often pays off handsomely to take the other side of the trade.
 
Many "end of the world" bets have been made over the years, but none of those have ever been paid off. Recent skew levels for options have hit record high marks, but the expected "collapse" has yet to occur. Will they be right? Sometimes they are right and a nice profit windfall comes from a market drop into a correction or worse. But at 5% or less probability, I'll still play the other side of the trade.
 
 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Lang had no position in any security mentioned.

TAGS: Investing | Stocks

More from Stocks

Here's a Brokerage Firm With Bullish Charts

Bruce Kamich
Feb 7, 2023 10:08 AM EST

We have a new price target.

Wary of What's Ahead With the Fed, China and 0 Days to Expiration Options

Peter Tchir
Feb 7, 2023 10:00 AM EST

All three stand to impact the markets, with the last of the trio potentially swinging market sentiment wildly from day to day.

Hot for AI Stocks? Try This Intelligent Approach to Artificial Intelligence

Bob Byrne
Feb 7, 2023 8:30 AM EST

Rather than get burned by issues with suddenly inflated prices that eventually could crash back to earth, go with tried-and true-names in technology development.

Can Pfizer's Charts and Fundamentals Get on the Same Page?

Bruce Kamich
Feb 7, 2023 8:15 AM EST

The pharmaceutical giant gained an analyst's buy recommendation but its technical signals are lackluster at best.

Skyworks Solutions Is Improving but Doesn't Appear to Be Heading Skyward

Bruce Kamich
Feb 7, 2023 7:50 AM EST

The charts indicate that the shares of the semiconductor maker are likely to trade sideways for a while even as it gains an analyst's buy recommendation.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:22 AM EST REAL MONEY

    LIVE EVENT: Bruce Kamich and Todd Campbell Share Their Stock Market Insights

    This Monday, Feb. 6 at 12 p.m., our very own exper...
  • 02:58 PM EST REAL MONEY

    Sarge Guilfoyle Breaks Down the Jobs Report, Fed Policy and Stocks!

    Watch it here!
  • 11:35 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading an Irrational Market
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login