By definition, pricing in a 'black swan' is impossible, but while VIX slumbers along near record lows, options professionals appear to be extremely worried about the potential for a huge downside tail-risk event.
As 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".
With SKEW at over 146, markets have only been more fearful of a collapse twice in its 27 year history…
Of course, each of those two events 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?
The post Options Traders Are Pricing In The 3rd Highest Chance Of A ‘Black Swan’ Crash In History appeared first on crude-oil.top.