What Is the Difference between a ‘Volatility Smile’ and a ‘Volatility Smirk’?
A volatility smile is a symmetric curve where OTM calls and OTM puts have higher IV than ATM options. A volatility smirk is an asymmetric curve, typical in equity and crypto markets, where OTM puts have significantly higher IV than OTM calls, creating a downward slope on the strike axis.
Glossar
OTM Calls
Option ⎊ OTM calls, or out-of-the-money call options, are derivative contracts where the strike price exceeds the current market price of the underlying asset.
OTM Puts
Derivatives ⎊ Cryptocurrency options, particularly out-of-the-money (OTM) puts, represent a structured financial instrument enabling investors to gain exposure to potential price declines in underlying digital assets.
Volatility Skew
Bias ⎊ This term describes the non-symmetrical relationship between implied volatility levels for options with different strike prices, indicating a market bias toward expecting larger moves in one direction.
Volatility Smile
Curve ⎊ The volatility smile, observed in options markets, represents the graphical depiction of implied volatility across different strike prices for options with the same expiration date.
Volatility Smirk
Volatility Structure ⎊ Volatility Smirk describes a specific pattern observed in the implied volatility surface where options with lower strike prices (puts) exhibit higher implied volatility than options with higher strike prices (calls), relative to the at-the-money strike.