To analyze skewness in implied volatility for options trades, check how implied volatility (IV) changes across different strike prices of the same expiry. If IV is higher for out-of-the-money puts than calls, it indicates a downside fear in the market (put skew). Use an options chain or IV chart to compare the IV values for different strikes. This tells you where the market expects more movement or risk.

What is implied volatility skew in options?

Implied volatility skew means that not all strike prices have the same IV. Usually, options far from the current market price (OTM puts or calls) have different IV than ATM (at-the-money) options. This skew reflects market expectations — if traders expect a fall, OTM puts will have higher IV. If they expect a rise, OTM calls might have higher IV. Skew helps traders understand where fear or excitement lies in the market.

How to check implied volatility skew using option chain?

Open the option chain of any stock or index. Check the implied volatility for each strike price. If the IV of puts increases as strike price goes lower, it means there is downside skew. If the IV of calls increases as strike goes higher, it means there is upside skew. This method is simple and available on most trading platforms like Angel One or NSE India website.

Why is volatility skew important in options trading?

Volatility skew helps you know what the market is expecting. If there is high IV in puts, traders fear a big drop. If high IV is in calls, traders expect a strong rally. Knowing this, you can choose the right strategy. For example, if put skew is high, selling OTM puts can give better premiums. If call skew is high, buying OTM calls may be costly. So, skew directly affects option pricing and strategy.

What are the types of volatility skew?

1. Put Skew: Higher IV in OTM puts. It shows market fear or bearish sentiment.
2. Call Skew: Higher IV in OTM calls. It reflects bullish expectation or aggressive buying.
3. Smile Skew: IV is high for deep ITM and OTM options, but low for ATM. This happens in very volatile markets.
Each type gives different signals. Traders must identify the type to adjust their trades accordingly.

How does skew affect option pricing?

When implied volatility is high for a strike, its option premium becomes more expensive. So if a put option has high IV, it will cost more even if the price is far from current market. This is important when buying or selling options. Always check IV before trading — sometimes it's better to sell an overpriced option if you expect IV to fall after the event (like result day or budget).

Which strategies work based on IV skew?

You can use skew to pick the right option strategy. For example:
✅ If IV is high in puts – try put credit spread (sell higher IV put, buy lower IV put).
✅ If IV is high in calls – try bear call spread or short OTM calls.
✅ If IV is low on both sides – straddle or strangle won’t work well, since premiums are low.
✅ Use Iron Condor when IV is high on both sides.
Skew tells you which leg of the trade will give more premium or protection.