BY: HANS ALBRECHT, CIM®, FCSI®, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
September 25, 2018
The SKEW Index is surging to near all-time highs and it’s making some investors nervous.
Should it? The index measures the ‘cost’ for fairly out-of-the-money 30-day S&P 500 Index puts, versus the cost for similarly out-of-the-money calls. Because it’s a relative value figure, we are never 100% certain as to why it is surging without looking more deeply into both sides of the data. Put volatility may be rising, but likewise, call volatility may be dropping.
Regardless of the reason, the SKEW Index is nearing the highest levels that we’ve ever seen. But just because many investors are aggressively buying puts (which is the case here), are they worried? Well, perhaps somewhat, but not necessarily. When we buy house insurance are we worried about an imminent fire? No, we buy it for peace of mind. Perhaps at the moment, market participants are a little worried about US mid-term elections, China trade war headlines or potentially higher rates. But whatever the reason, put-buying can allow investors to stay the course and remain invested in equities. I believe that many put buyers are seeing it that way.
Source: Thomson ONE and Horizons ETFs, September 2018.
The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.