We have data for the CBOE SKEW Index (SKEW) going back to the first trading day in 1990. Yesterday, SKEW finished the day at the highest level over this period closing at 153.66. The chart below shows the annual high low and average by year going back to 1990. That highest green dot is yesterday’s close.

SKEW By Year

So exactly what does that mean? In simple terms it means the relative implied volatility for SPX out of the money puts is elevated when compared to near at the money puts. SKEW is calculated as a ratio which means is may rise if the numerator (out of the money puts) climbs faster than the denominator (puts with a strike price closer to the underlying market). It may also mean that at the money volatility dropped faster than out of the money put implied volatility.  This second table shows the ten largest one day drops for VIX. Note that yesterday was the 9th largest one-day drop VIX.

VIX Down Table

So when you see someone talking about how high the SKEW is, that does mean that out of the money SPX Puts have high implied volatility relative to contracts with a strike price close to where the S&P 500 is trading. However, also note that SKEW is a ratio which means the high SKEW could be due to the numerator climbing or the denominator dropping.