Skewness
InvestingDefinition
Measure of asymmetry in a return distribution. Negative skew: more big losses than big gains (typical of equity returns — crashes are sharper than rallies). Positive skew: more big gains than big losses (lottery tickets, venture capital).
Investors prefer positive skew at the same expected return. Selling vol generates short-skew exposure (small frequent gains, occasional big losses) — the source of the volatility risk premium.
Investors prefer positive skew at the same expected return. Selling vol generates short-skew exposure (small frequent gains, occasional big losses) — the source of the volatility risk premium.