Volatility Skew Information


Volatility Skew

– situation where individual options on a particular entity have different implied volatilities that form a pattern 
– the pattern can be a positive or negative skew

Positive Skew (forward skew)
– higher strikes, higher IV

Negative Skew (reverse skew)
– lower strikes, higher IV 

options volatility skew



Horizontal Skew
– long term options with lower IV
– because longer term options have uncertainty of future news


If skew is (+) and IV is Low Percentile –> Put Backspread
If skew is (+) and IV is High Percentile –> Call Ratio Spread
If skew is (-) and IV is Low Percentile –> Call Backspread
If skew is (-) and IV is High Percentile –> Put Ratio Backspread



Credits: https://www.optionstrategist.com/blog/2013/03/volatility-skew-information