What is volatility skew in options?

Volatility skew is the pattern of implied volatility varying by strike price instead of being flat. On most stocks and equity indexes, out-of-the-money puts carry higher implied volatility than out-of-the-money calls at the same distance from the stock price — which makes downside protection structurally more expensive than upside exposure.

Why do OTM puts have higher implied volatility than OTM calls?

Two forces. First, demand: investors holding stock buy puts as portfolio insurance, and persistent buying pressure raises put prices and therefore put IV. Second, behavior: stocks tend to fall faster than they rise, so the market prices a fatter left tail. The pattern became pronounced after the 1987 crash and has persisted in equity options ever since.

How does volatility skew affect iron condors?

Skew makes the two sides of an iron condor asymmetric. The put spread collects richer premium than a call spread at the same distance from the stock price. Building a condor with equidistant wings produces uneven credit between the sides, which is why many traders place the put side further out or accept the asymmetry knowingly rather than expecting symmetric premium.

What is the difference between volatility skew and volatility smile?

Both describe the shape of implied volatility plotted across strikes. A smile is roughly symmetric — IV rises for strikes far above and far below the stock price, common in currency options. A skew (sometimes called a smirk) is lopsided — IV rises much more on the put side, which is the typical pattern in equity options.

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Volatility Skew Explained

7 min read · Last updated April 2026

Take a stock at $100. The $90 put and the $110 call are the same distance from the money — and the put costs meaningfully more. That price gap is volatility skew, and it quietly reshapes the math on every spread, condor, and hedge you build.

What Volatility Skew Is

Implied volatility isn't one number per stock — it's a number per contract. Plot IV across strikes for the same expiration and on most equities you get a lopsided curve: IV climbs as strikes move below the stock price and flattens or dips as strikes move above it. Traders call the shape a skew, or a smirk.

The consequence is concrete: downside options are priced as if the stock is more volatile than upside options priced for the same stock, same expiration, same moment. That's not a mispricing you can arbitrage. It's the market charging more where it fears more.

Why It Exists

Two forces, one behavioral and one structural.

Demand: most market participants own stock, and owners buy puts for protection. That persistent insurance demand pushes put prices up, and higher prices mechanically mean higher implied volatility. Nobody buys crash insurance on the upside.

Behavior: stocks take the stairs up and the elevator down. Crashes happen in days; rallies take months. A model that assumes symmetric moves understates the left tail, and the market corrects for that by pricing downside strikes richer. Equity skew became pronounced after the 1987 crash and never left.

What Skew Changes About Your Trades

Selling put spreads collects more than selling call spreads. A put credit spread 5% below the stock brings in richer premium than a call credit spread 5% above it — you're selling the expensive insurance. That extra credit isn't free money; it's compensation for the fatter downside tail you're now short.

Iron condors are asymmetric even when they look symmetric. Equidistant wings produce uneven credits between the put and call sides. Traders who expect symmetry either place the put side further out to balance the premium, or accept the lopsidedness deliberately. Either is fine — not knowing which one you did is the mistake.

Protection costs real money. Buying puts to hedge stock means paying the skew premium, every time. It can still be worth it — but the persistent cost is why protective puts drag on returns more than a flat-IV model suggests.

Cheap OTM calls are cheap for a reason. The low IV on upside strikes reflects the market's expectation of slower grinds up, not a bargain the market missed.

How to See It on a Chain

Any full brokerage options chain shows IV per contract. Pick an expiration, read the IV column top to bottom, and the skew is right there: puts 10% below the money running several points of IV above calls 10% above it. On indexes like SPX and SPY the pattern is steepest; on hot momentum names the call side can even lift when speculative demand piles in.

One honest note about this site: the OpCalc chain is a model-generated estimate that applies a built-in asymmetric skew, so its prices reflect the typical equity pattern — but real market skew varies by stock, by expiration, and around events. When precision on a specific name matters, read the live chain at your broker.

Then bring the trade here: build the put spread and the call spread on the same stock in the Options Profit Calculator and compare what each collects against the risk it carries — the expected value card next to profit probability shows you what the premium difference is actually paying you for.

Model both sides →

Build a put spread and a call spread on the same stock and compare what each collects for the risk it carries.

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