What Is a “Volatility Skew” in Options Markets?
Volatility Skew (or smile/smirk) is the phenomenon where options with the same expiration date but different strike prices have different implied volatilities. Historically, out-of-the-money (OTM) Put options (protection against a market crash) often have higher IVs than OTM Call options, creating a "skew" in the volatility surface.
This reflects market demand for downside protection.
Glossar
Strike Prices
Definition ⎊ Strike Prices represent the fixed price at which the holder of an option contract has the right, but not the obligation, to buy or sell the underlying cryptocurrency asset upon exercise.
Market Demand
Aggregation ⎊ Market demand represents the aggregated buying interest for a crypto asset or its derivative across all market participants, including retail, institutional, and algorithmic trading entities.
Expiration Date
Deadline ⎊ The Expiration Date marks the definitive deadline for the option contract, after which the right to exercise or the obligation to perform ceases.
Option Premium
Cost ⎊ The Option Premium represents the initial cost paid by the buyer to acquire the right conveyed by the contract, functioning as the price for risk transfer.
Put Options
Premium ⎊ Put options, within cryptocurrency markets, represent a contractual obligation assumed by a seller to fulfill a buyer’s right to sell an underlying asset at a predetermined price on or before a specified date, functioning as a protective mechanism against downward price volatility.