What Is Options Skew (Volatility Skew)?

What Skew Actually Measures

Options skew describes how implied volatility differs across strike prices within the same expiration. If every strike priced in identical implied volatility, a chain would be flat. In practice, equity index options like SPX almost never look flat — they show a consistent pattern often called a volatility smirk.

The SPX Pattern: Puts Priced Richer Than Calls

On SPX and similar equity indices, out-of-the-money puts typically carry higher implied volatility than equidistant out-of-the-money calls. This has been a consistent, structural feature of equity index options since the 1987 crash, driven by two related forces: persistent hedging demand (investors holding long equity exposure buy puts for downside protection, creating steady demand that pushes put IV up), and the market's own pricing of tail risk (real markets fall faster and harder than they rise, and options pricing reflects that asymmetry).

Reading Skew: Steep vs. Flat

• Steep put skew — puts priced well above calls — suggests elevated hedging demand or caution: more of the market is actively paying up for downside protection right now.
• Flat or compressed skew — puts and calls priced closer together — suggests relative complacency, with less urgency around downside protection.
• Skew is a read on which direction the market is pricing uncertainty for at a single expiration — distinct from volatility term structure, which reads when that uncertainty is priced across different expirations.

Skew and Dealer Positioning

The same structural put-buying demand that drives skew is also a real input into dealer positioning: heavy put open interest at a given strike is exactly what can build a meaningful put wall — a level where dealers, hedging that put exposure, tend to become buyers of the underlying as price approaches it. Skew and gamma exposure aren't the same measurement, but they're often describing two views of the same underlying hedging demand.