What Is the “Volatility Smile” or “Volatility Skew” in Crypto Options?

The volatility smile or skew is the pattern observed when plotting the implied volatility (IV) of options against their strike prices for a fixed expiration date. Instead of a flat line (as Black-Scholes assumes), out-of-the-money (OTM) puts often have a higher IV than at-the-money (ATM) options, creating a "skew" or "smile." This reflects the market's fear of large, sudden downside moves (tail risk) in crypto assets, making OTM protection more expensive.