What Is the ‘Volatility Skew’ or ‘Smile’ in Cryptocurrency Options and What Does It Indicate?

Volatility Skew or Smile refers to the phenomenon where options with different strike prices but the same expiration date have different Implied Volatilities (IVs). A Skew typically shows out-of-the-money (OTM) Put options having higher IV than OTM Call options, suggesting the market expects a larger downside move.

A Smile indicates that both OTM Puts and OTM Calls have higher IV than At-the-Money (ATM) options.