IV Smile & Volatility Skew Analysis
The IV Smile chart plots implied volatility for every listed strike at a given expiration, separating the call wing from the put wing. The shape of the curve — the smile, smirk, or skew — tells you where market makers are pricing the most fear and greed, and where you may find mispriced contracts relative to fair-value models.
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- IV per strike, per expiration, call wing vs put wing
- Spot skew, smirk, and curvature dislocations
- Identify which wing to sell and which to buy
Steep put skew is the typical equity-index profile: traders pay a premium for downside protection. A flattening or inverting skew often signals complacency or short-squeeze positioning. Compare today’s smile to historical envelopes to identify volatility regimes that favor calendars, verticals, or ratio structures.
Frequently asked questions
What does a steep put skew indicate?
High demand for downside protection. Out-of-the-money puts trade at a higher implied volatility than equivalent calls. This is the default state for most equity indices and individual large-cap stocks.
When does an IV smile become a smirk?
When one wing of the curve dominates the other. A put-side smirk is common in equities; a call-side smirk shows up in commodities or short-squeeze candidates where upside hedging demand exceeds downside.
How do I use the smile for trade selection?
Sell volatility on the elevated wing, buy the cheap wing, or structure ratio spreads that exploit the curvature. The smile also helps you avoid paying up for expensive wings when expressing a directional view.
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