What is the 'Volatility Skew'
The volatility skew is the difference in implied volatility (IV) between outofthemoney, atthemoney and inthemoney options. Volatility skew, which is affected by sentiment and the supply/demand relationship, provides information on whether fund managers prefer to write calls or puts.
Also known as "vertical skew".
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BREAKING DOWN 'Volatility Skew'
A situation where atthemoney options have lower IVs than outofthemoney options is sometimes referred to as a volatility "smile", due to the shape it creates on a chart (as above). In markets such as the equity markets, a skew occurs because money managers usually prefer to write calls over puts.
RELATED TERMS

Horizontal Skew
The difference in implied volatility (IV) across options with ... 
Skewness
Describe asymmetry from the normal distribution in a set of statistical ... 
Volatility Smile
A ushaped pattern that develops when an optionâ€™s implied volatility ... 
Implied Volatility  IV
The estimated volatility of a security's price. 
Volatility Arbitrage
Trading strategies that attempt to exploit differences between ... 
Ratio Call Write
An option strategy in which an investor owns shares in the underlying ...
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