Market Extra: A popular stock-market ‘black swan’ gauge is at a record

A popular options-market gauge of so-called black swan, or difficult to predict, events is drawing the attention of some bears on Wall Street as it trades at record levels.

The CBOE Skew Index SKEW, -0.91% or simply Skew, which measures the relative cost of purchasing out-of-the money put options on the S&P 500 index SPX, -0.20% finished at a record of 153.34 on March 17, and maintained that level on Monday. Put options confer the right, but not necessarily an obligation, to sell an asset at a specific price and time, while calls give the owner the right to buy an underlying asset (see chart below of the S&P 500 compared with Skew levels):

Source: FactSet

Skew essentially offers a way to gauge relative demand from investors interested in purchasing insurance—or hedging their equity exposures—against a possible downturn in the broader stock market.

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