How Does 'Volatility Skew' Affect the Margin Calculation for Out-of-the-Money Options? ▴ Learn

How Does ‘Volatility Skew’ Affect the Margin Calculation for Out-of-the-Money Options?

Volatility skew is the phenomenon where options with different strike prices but the same expiration date have different implied volatilities. Out-of-the-money (OTM) options often have a higher implied volatility than at-the-money options.

This higher implied volatility is factored into the risk-based margin model, resulting in a higher margin requirement for OTM options than a standard model would suggest, reflecting their higher perceived risk.

Why Is Delta Typically Lower for Out-of-the-Money (OTM) Options?

How Does an In-the-Money Covered Call Differ from an Out-of-the-Money Covered Call?

What Is the Concept of “Skew” in Implied Volatility and Its Effect on Inventory Risk?

How Can a Trader Profit from a Perceived Mispricing in the Volatility Skew?