IV Smile & Volatility Skew Analysis

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 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.

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.