What Is the Concept of “Volatility Skew” and How Does It Relate to Market Fear?

Volatility skew, or smile, is the pattern where options with the same expiration date but different strike prices have different implied volatilities (IVs). In equity and crypto markets, a typical skew shows that out-of-the-money (OTM) put options (protecting against a fall) have a higher IV than OTM call options.

This "put skew" reflects market fear, as traders are willing to pay a higher premium for downside protection, indicating a greater perceived risk of a sharp market crash.