How Does a “Crash-Phobia” Market Sentiment Influence the Put Skew?

"Crash-phobia" is a persistent market fear of a sudden, sharp price drop. This fear drives a high demand for protective out-of-the-money (OTM) put options.

The increased demand causes the implied volatility of these OTM puts to rise significantly relative to other strikes, which is the definition of a steep put skew. Traders are willing to pay a premium for tail-risk protection.