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The asymmetric pattern of implied volatility where downside strikes trade at higher IV than upside strikes.
The asymmetric pattern of implied volatility where downside strikes trade at higher IV than upside strikes.
Volatility skew describes the empirical finding that for the same maturity, put options trade at higher implied volatilities than equivalently out-of-the-money call options. The pattern reflects market pricing of crash risk, leverage effects, and the persistent demand for portfolio insurance.
Skew slope is a real-time risk appetite indicator.
Risk-reversal (buy OTM put, sell OTM call) is the standard skew trade.
Volatility skew is more pronounced for short maturities and high-vol regimes.