How Does the Implied Volatility Skew Reflect the Market's Perception of Tail Risk? ▴ Learn

How Does the Implied Volatility Skew Reflect the Market’s Perception of Tail Risk?

Volatility skew is the difference in Implied Volatility (IV) across different strike prices for the same expiration. A "fear skew" means OTM put options have higher IV than OTM call options.

This indicates the market is willing to pay a higher premium for crash protection (OTM puts), reflecting a collective fear and perception of elevated tail risk.

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