Volatility Skew Analyzer
Visualize the Implied Volatility Skew (or Smile) by plotting IV across different strike prices. Identify expensive vs. cheap options relative to the curve.
Global Parameters
Option Chain Data
Volatility Skew Curve
| Strike | Type | Price | Implied Volatility |
|---|---|---|---|
| $90 | put | $2.50 | 58.94% |
| $95 | put | $1.20 | 28.64% |
| $100 | call | $3.50 | 29.02% |
| $105 | call | $1.50 | 28.28% |
| $110 | call | $0.50 | 27.50% |
Understanding Volatility Skew
Volatility Skew is a graphical representation of the Implied Volatility (IV) of options across different strike prices for the same underlying asset and expiration date. In a perfect Black-Scholes world, the curve would be flat—meaning IV would be the same for all strikes. However, in real markets, this is rarely the case.
Types of Skew Patterns
- Volatility Smirk (Reverse Skew): Common in equity markets (like SPY). OTM puts have higher IV than OTM calls. This reflects the market's fear of a crash ("crash phobia"), leading to higher demand for protective puts.
- Volatility Smile: Common in forex markets. Both deep OTM puts and calls have higher IV than ATM options. This suggests the market fears extreme moves in either direction.
- Forward Skew: OTM calls have higher IV than OTM puts. This can happen in commodities or stocks where there is a fear of a supply shortage or a takeover bid.
How to Trade Volatility Skew
Traders use skew analysis to identify mispriced options and select optimal strategies:
- Vertical Spreads: If skew is steep (puts are expensive), selling OTM puts (Bull Put Spread) might offer better credit than usual.
- Butterflies & Condors: Skew affects the cost of wings. A flat skew makes Iron Condors more attractive, while a steep skew might favor directional spreads.
- Risk Reversals: Buying an OTM call and selling an OTM put (or vice versa) is a strategy directly playing the skew curve.
Master the Skew with AI
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