Volatility skew

Volatility skew describes the pattern where options at different strike prices carry different implied volatility levels, even within the same expiration. In equity markets, OTM puts almost always have higher IV than OTM calls at the same distance from the current price, this is called a negative or downward skew.

Why it exists: Investors consistently pay more for downside protection (puts) than for upside speculation (calls). This persistent buying pressure inflates IV for OTM puts relative to calls. After the 1987 crash, skew became a permanent feature of equity options markets.

Why it matters for traders: Skew affects the relative value of puts vs calls and the pricing of spreads. When selling a bull put spread, you benefit from skew, the elevated IV on the put side inflates the credit you collect. When buying OTM calls, you're generally buying at lower IV than OTM puts at the same distance, a slight structural advantage for call buyers vs put buyers.

Reading skew: On an options chain, look at the IV column across strikes. If the $480 put has IV of 22% and the $540 call has IV of 14% (with the stock at $510), the skew favors the put side, as is typical in equity markets.

Example: SPY is at $510. The $490 put has IV of 24%. The $530 call has IV of 14%. Both strikes are $20 from the stock price. The skew is 10 volatility points, puts are significantly more expensive.

Related terms: Implied volatility, IV rank, put option, bull put spread, volatility smile

Try it on Stryke: Compare IV across strikes in the Options Screener to visualize skew on any ticker.