What Is a “Volatility Skew” in the Options Market?
A volatility skew, or volatility smile, is the pattern where options with different strike prices for the same expiration date have different implied volatilities. Typically, out-of-the-money put options (lower strikes) often have higher IV than at-the-money options, and OTM call options (higher strikes) have lower IV.
This pattern reflects market expectations of a higher probability of sharp downside movements.
