To The Moon

1.What is the implied volatility skew curve

The volatility skew is the difference in implied volatility (IV) between out-of-the-money options, at-the-money options, and in-the-money options. call and put have a curve respectively, which can visually see the IV changes under different strikes.

A situation in which at-the-money options have lower implied volatility than out-of-the-money or in-the-money options is sometimes referred to as a volatility "smile" due to the shape the data creates when plotting implied volatilities against strike prices on a chart.

This curve also has a skewness distinction, that is, the bottom of the smile is not in the center, but will at the left or right, which can be judged by the Skewness value.

2.How to use

scenario: the curve is weighted to the left

As shown in the above figure, this is a common volatility graph. The lowest point of IV for call and put is located on the right side of the current price, because option sellers often sell calls at a strike slightly higher than the current price, causing the IV value here low.

At the same time, the left side of the curve is higher than the right side of the curve, indicating that people are more likely to buy put options for downside protection. If we expect short-term price increases, it is also more appropriate to buy call, but remember to sell as soon as it rises, don't be greedy~

Through this chart, we can find that the left side of the curve will be higher than the right side, so in this case, selling put will have a higher time value than the same level of out-of-the-money call.

In addition, if we expect the price to rise, then this skew curve will move to the right, and the volatility of the stock price change will also affect the size of this curve.

3.Feature Navigation

Stock Detail Page - Option - Options Analysis - Volatility Skew Curve