Skew
The pattern of implied volatility varying across strikes at one expiration. In equity indexes, downside puts trade at persistently higher IV than at-the-money options — the market charges more for crash protection.
Skew exists because equity markets fall fast and rise slowly, and because structural demand for downside hedges meets limited supply. It is the reason “cheap” out-of-the-money puts are, in vol terms, usually the most expensive options on the board.
Skew shape carries information: steepening often accompanies hedging demand, while flattening can signal complacency or heavy call demand. Strategies that sell skew harvest a real premium and inherit a real tail.
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