Skewness in options pricing tells us how the market is feeling about future price movements. If the skewness is positive or negative, it shows whether traders think the stock is more likely to go up or down. By looking at skewness, you can understand where most traders are placing their bets, which helps in planning better option trades.

What is skewness in options pricing?

Skewness in options pricing means the difference in implied volatility between in-the-money, at-the-money, and out-of-the-money options. It shows if people are more worried about the price going down or hopeful about it going up. This helps traders understand the market mood and risk.

Why is skewness important for option traders?

Skewness is important because it helps option traders understand where most people expect the market to go. If there's more demand for puts, it may mean traders are afraid of a fall. If calls are more expensive, it means traders expect a rise. This info helps in making better trading decisions.

What does positive and negative skew mean in options?

A positive skew means call options have higher implied volatility, and traders expect the price to rise. A negative skew means put options are costlier, showing fear that the price may fall. This helps traders choose the right strategy based on market expectations.

How does skewness affect option pricing strategies?

Skewness affects how options are priced, which changes the cost of different strategies. For example, in a negative skew market, buying puts is expensive, so you might prefer spreads to reduce cost. In positive skew, call strategies may be costly, and traders may use vertical spreads. Knowing skew helps choose the right setup.

How can you use skewness to find trading opportunities?

You can use skewness to spot where the market expects big moves. If put options are overpriced, you might sell them using a credit spread. If calls are overpriced, the same can be done on the call side. This way, skewness helps in finding trades where you benefit from the price gap.

What tools can help analyze skewness in options?

You can use options chains on trading platforms like Angel One, NSE option chain, or advanced tools like Opstra and Sensibull. These show implied volatility at different strike prices, which helps spot skew. Look for where IV is high or low to understand skew and plan your trades better.