Skewness premium
Trade realized versus implied vol or vol-of-vol; short-vol carry feels smooth until it is not.
Overview
This strategy is based on the empirically observed negative correlation between the skewness of historical returns and future expected returns of the commodity futures. The skewness Si is defined as (i = 1,...,N labels different commodities): σ3 i T T∑ s=1 3 Ri = 1 T T∑ s=1 Ris (457) σ2 i = 1 T− 1 T∑ s=1 2 whereRis are the time series of historical returns (with T observations in each time series).
Skewness premium sits in the Commodities chapter of the systematic catalog. On QUSXFI we treat it as a testable hypothesis: specify entries, exits, sizing, and costs—then ask whether edge survives out-of-sample scrutiny.
Discretionary traders often arrive at similar ideas intuitively; the quantitative version forces you to write the rule before you see the next bar. That discipline is what makes results reproducible—or exposes them as luck.
Based on the research catalog 151 Trading Strategies (Kakushadze & Serur, 2018), section 9.5. Educational summary—not a replication of the full formal definition.
How the Strategy Works
Data alignment for Skewness premium (rolls, corporate actions, holiday calendars, contract specs) is part of the strategy, not housekeeping.
In Commodities, microstructure around opens, rolls, and fixes can dominate small statistical edges on Skewness premium.
Implementation and Research Process
Use consistent variance swap or options replication assumptions for Skewness premium; changing definitions breaks comparability.
Tag roll and expiry mechanics in Skewness premium if variance swaps or VIX futures are involved—path dependency is P&L.
Compare Skewness premium to a naive vol-sell benchmark net of costs—complexity must earn its keep.
Risk: What Breaks This Strategy
Selling vol in Skewness premium collects pennies in front of a steamroller—tail events dominate lifetime P&L.
Vol surface modeling errors (sticky strike vs sticky delta) change hedge ratios when you need them most.
Cross-margin with other books means a vol shock elsewhere forces liquidation here.
Common Mistakes to Avoid
- Using academic §9.5 definitions for Skewness premium while ignoring borrow, margin, or contract specs.
- Reporting Skewness premium backtests without fees, slippage, and realistic fill rules.
- Deploying Skewness premium live before paper trading through at least one adverse Commodities month.
- Marking Skewness premium to mids on wings you cannot actually exit.
How to Study This Strategy
- List every data field Skewness premium needs in Commodities; verify point-in-time integrity.
- Map Skewness premium to Basic Trading chart concepts you will use as filters—not as substitutes for rules.
- Run a paper book on Skewness premium for a full signal cycle; export trades and tag regimes manually.
- Write a one-page Skewness premium failure memo: three break modes and early warning signs.
- Compare Skewness premium to one sidebar alternative net of costs—document why you chose this structure.
Key Takeaways
- Skewness premium lives in the second moment—realized versus implied vol and term structure, not just price direction.
- Short-vol variants of Skewness premium collect carry with steamroller tail risk; size for the gap day, not the median week.
- Vol surface modeling errors change hedge ratios when stress arrives.
- VIX term structure trades face roll and contango mechanics that spot charts never show.
- Count left-tail days in Skewness premium backtests separately from average monthly P&L.
Learning Tip
Compare Skewness premium to one sidebar alternative net of costs—complexity should pay rent.
Explore related strategies in the sidebar or return to the full catalog.