means tilt in a normal distribution curve.
The CBOE SKEW Index, also called the
“black swan” index, measures the probability of outlier events, or down moves,
of two to three standard deviations. The
SKEW’s value typically ranges from 100 to
150, although it’s been known to go lower
and higher. When it’s at or close to 100, the
possibility of a black-swan event is unlikely.
The market in these moments is complacent. When the SKEW is at 115, it suggests a
6% risk of a black-swan event occurring. If
SKEW is at 135, that risk can rise to 12%.
You see how risk often doubles when the
SKEW moves from 115 to 135. To put some
context around current
market risk, type the symbol
SKEW into your thinkor-
swim platform. Pull up a
chart and look back over
a two- to five-year period.
You’ll see that SKEW hit a
high of 153.66 on June 27,
2016, in response to the Brexit vote.
What can a high SKEW mean for your
portfolio? It signals that OTM puts are
being bid up. And if OTM puts are trading
high, that could signal a potential opportunity to sell puts.
PAY CLOSE AT TEN TION
Despite all the fancy science wrapped
around trading, market fluctuations are often driven by emotion. If you have a feel for
what those emotions are at certain critical
inflection points, consider yourself a market participant who’s paying attention.
Above all, stay vigilant. If you’re watching SKEW and VVIX in relation to your
own strategies, you may be ahead of the fear
game. So go ahead, talk up VVIX and SKEW
at your next shindig—you’ll be all the rage.
—Words by JAYAN THI GOPALAKRISHNAN
It’s Earnings Time
BIG IDEA: YOU KNOW WHEN EARNINGS WILL
BE RELEASED, BUT HOW DO YOU PREPARE
FOR IT? WITH THE EARNINGS TAB.
Jayanthi Gopalakrishnan is not a representative
of TD Ameritrade, Inc. The material, views, and
opinions expressed in this article are solely those
of the author and may not be reflective of those
held by TD Ameritrade, Inc.
You cannot invest directly in an index.
• Earnings season: There’s this euphoria that surrounds it.
Traders love it because there’s a chance of a quick movement
in a stock’s price. There’s so much buzz about what the consensus is, but there’s still that element of surprise. Companies
release earnings quarterly—that you know. No surprise there.
You also know when they’ll make their announcement. What
you don’t know is what that earnings number will be. And
when that announcement is made, there’s a potential for a
dramatic move, one that could result in opportunities or risk.
You still need to be prepared to better manage your positions,
and lucky for you there are ways you can prepare yourself.
For example, you could find out how a particular stock re-acted to previous earning periods. This is where the new
Earnings tab in thinkorswim® can be useful. It allows you to
compare past earnings results, volatility around earnings,
and both analyst and crowdsourced estimates from Estimize.
For the latest release
notes and thinkorswim
how-to videos, go to
Source: thinkorswim by TD Ameritrade. For illustrative purposes only.
GEAR HEAD • SEASONED
earnings event in increments of days and 30
3 – The bottom section
displays Wall Street’s
earnings and revenue
ranges, Estimize ranges,
and the actual results
of previous earnings.
tab and then click on
the Earnings subtab.
Enter the symbol for
a company you are
2 – The “Fit all” and
Zoom sections of the
tool show pricing and
volatility data five days
before and after the
1 – To view earnings-related information,
click on the Analyze
LOOK AT PAST DATA
Here’s how you can
navigate around the
4 – The rightmost
column displays the
estimate as well as
pricing and volatility
data starting five days
before the event.