How Do Volatility Indexes Compare to Volatility Skew? By Matt Moran

How does 30-day implied volatility at various strike prices compare to related volatility indexes?  This Blog provides a brief overview of some sample data and graphs on this topic.


While the volatility indexes are great gauges for showing intraday and long-term changes in expected volatility, the volatility indexes often can be somewhat higher or lower than implied volatility at various strike prices.  Below is a line graph closing values on July 17th (which fortuitously was 30 days prior to the upcoming August 16th expiration Friday for SPX and GLD options, but not for VIX).  The graph shows 30-day implied volatility estimates at different moneyness levels.  Below the line graph is a black table with closing values for three implied volatility indexes.

4-Vol Skew VIX GLD SPXVol indexes Table

Note that slopes of the lines differ.  The implied volatility for options at 90% moneyness is greater than the implied volatility for the (at-the-money) options at 100% moneyness for SPX and GLD options. For the SPX options, the implied vol at 90% moneyness is 36% higher than at 100% moneyness,  while for GLD, the implied vol at 90% moneyness is 27% higher than at 100% moneyness. One explanation for the steepness of the SPX line chart is the fact that after the 1987 stock market crash, many investors had heightened concern about left tail risk and there is great demand for O-T-M protective SPX put options as hedging instruments, even if the implied volatility for OTM SPX puts is higher than recent SPX historic volatility and the implied volatility for ATM SPX puts.  The VIX closed at 13.78, while the 30-day implied volatility for SPX options ranged from 11.2 to 18.9 at various strike prices from 90% moneyness to 110% moneyness. 

The VIX usually has had a negative correlation to the moves of the S&P 500 Index, and volatility skew curve for VIX is much different than for the SPX.  Many investors like to buy out-of-the-money call options on the VIX to help guard against catastrophic drops in their portfolio.  At the close on July 19th, the VIX  spot Index closed at 13.78, and for the VIX call options that expired on Wed., August 21st (35 days later) –

(1)    the ask price for the VIX 14 calls was 2.14 (for an implied volatility of 64),

(2)    the ask price for the VIX 19 calls was 70 cents (for an implied volatility of 91).

To read more about this topic, please click on the slide presentation on Equity Related Volatility Skew by Natenberg and Weithers that was delivered at a CBOE Risk Management Conference.   


The methodology for the CBOE Volatility Index® (VIX®) uses near-term and next-term out-of-the money SPX options with at least 8 days left to expiration, and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.  CBOE now offers more than 20 volatility indexes that are designed to provide measures of expected 30-day volatility of various securities.   In the July 16 Striking Price column at, Bill Luby wrote –

“ … investors should be taking advantage of a new generation of volatility indexes to better gauge risk across the full spectrum of investments. … A broad-based approach to risk has proved to be even more important over the past year or so, as deviations across these varied measures of risk have increased dramatically. … . Even if one chooses not to trade the divergence, it is important to understand the early warning system that a broad basket of volatility indexes can provide.”



On July 17th the CBOE Skew Index (SKEW) closed at 115.27 (which was below its long-term average of 117.02).  SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.


For more information, data and a bibliography, please visit


The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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