What Is the Concept of "Skew" in Relation to the Time Value of ATM Vs OTM Options? ▴ Learn

What Is the Concept of “Skew” in Relation to the Time Value of ATM Vs OTM Options?

Volatility Skew (or Smile) describes the phenomenon where options with the same expiration but different strike prices (different moneyness) have different implied volatilities (IVs). For crypto and equity options, OTM Puts often have higher IVs (and thus higher time value) than ATM options, creating a "skew." This reflects the market's higher demand for downside protection (tail risk).

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