Private beta — free access by invitation
Option Journal
Table of contents

BlogPublished June 19, 2026 · 15 min read

Volatility Skew and Smile: Why OTM Puts Pay More

Illustration of a curve representing volatility skew and smile
Equity puts trade at higher implied volatility than calls—the skew is why downside premium pays more.

Volatility skew and smile explained for option sellers: why out-of-the-money puts carry higher implied volatility, what causes the skew, and how to use it when selling.

Sell a put and a call the same distance from the money, and the put almost always pays more. That is not an accident—it is volatility skew, and it shapes every premium-selling decision in equities.

Implied volatility is not constant across strikes. In stock and index options it slopes upward toward lower strikes, so out-of-the-money puts carry richer implied volatility than equidistant calls. The pattern reflects how investors price crash risk.

This guide explains volatility skew and smile for option sellers: what they are, why equity puts are bid up, how the skew shows up in your strikes, and how to use it. This is education, not investment advice.

You will learn what volatility skew and the volatility smile are, why OTM puts pay more, and how the pattern affects strike selection.

Implied volatility isn't flat across strikes

If options were priced by a simple textbook model, every strike on the same expiration would share one implied volatility. In reality, plotting implied volatility against strike produces a curve—not a flat line. The shape of that curve is the skew or the smile, and it tells you where the market is charging more for risk.

Two shapes to know:

  • Smile — IV is higher at both low and high strikes, lower at the money
  • Skew (smirk) — IV slopes up toward lower strikes; common in equities
  • Equity index options show a pronounced downside skew
  • The curve shifts and steepens as fear rises

The smile is more typical of currencies and some commodities; equities and indices show a left skew, where downside puts are bid up the most.

Why equity puts are bid up

Equity skew exists because investors fear crashes more than they chase melt-ups. Stocks tend to fall faster than they rise, and most market participants are long, so demand for downside protection is structurally high. That steady bid for OTM puts pushes their implied volatility—and their price—above equidistant calls.

What drives the downside skew:

  • Crash risk—markets fall faster and harder than they rally
  • Hedging demand—long investors buy puts for protection
  • Leverage and forced selling amplify down moves
  • The skew steepens when fear rises and flattens when it fades

In other words, put sellers are paid extra precisely because they are supplying the protection everyone else wants—compensation for the same crash risk discussed in historical vs. implied volatility.

How skew shows up in your strikes

Skew is why a 16-delta put and a 16-delta call on the same expiration rarely pay the same: the put usually pays more. It also means delta and implied volatility are intertwined—the richer put IV is part of why cash-secured puts and put-side spreads are popular vehicles for premium.

Practical implications:

  • OTM puts collect more premium than equidistant OTM calls
  • Put credit spreads can capture the steeper near-the-money put skew
  • Iron condors are often asymmetric because the put side pays more
  • In a panic, skew steepens—existing short puts feel it through vega

This skew is part of why so many sellers favor the put side—see selling puts—and why an iron condor rarely has perfectly symmetric premium on each wing.

Using skew without over-trading it

Skew is useful context, not a signal to chase. The extra put premium is compensation for real downside risk—selling more puts because they pay more is just taking more crash exposure. Use skew to understand your pricing, not to justify oversizing.

Sensible ways to use it:

  • Expect put-side premium to exceed call-side at the same delta
  • Recognize a richer put credit spread reflects more risk, not free money
  • Watch skew steepening as an early sign of market stress
  • Don't let attractive put premium override position sizing

The discipline that keeps skew from luring you into too much downside is position sizing, and concentration in correlated downside bets is covered in correlation and sector concentration.

Conclusion: the skew is the price of fear

Key takeaways:

  • Implied volatility varies by strike—skew or smile, not a flat line
  • Equities show a downside skew: OTM puts carry higher IV
  • It reflects crash fear and hedging demand—real risk, fairly priced
  • Use skew to understand pricing, not to oversize the put side

Educational only—not personal financial advice. More in the blog · Request access.

Frequently asked questions

What is volatility skew?

Volatility skew is the pattern where implied volatility varies across strikes on the same expiration. In equities it slopes upward toward lower strikes, so out-of-the-money puts carry higher implied volatility than equidistant calls.

Why do out-of-the-money puts have higher implied volatility?

Because investors fear crashes and most are long, demand for downside protection is structurally high. That steady bid for puts raises their implied volatility and price above equidistant calls.

What is the difference between volatility skew and smile?

A smile has higher implied volatility at both low and high strikes; a skew (or smirk) slopes mainly one way. Equities and indices typically show a downside skew, while currencies more often show a smile.

How does skew affect option sellers?

It means put-side premium usually exceeds call-side at the same delta, so put credit spreads and iron condors are often asymmetric. The extra premium is compensation for crash risk, not free money—see selling puts.

Should I sell more puts because they pay more?

No. The richer put premium reflects greater downside risk. Selling more puts simply because skew pays more is taking on more crash exposure—let position sizing, not premium, set how much you sell.

From blog to product

Request access to the private beta and we will email you after review.

Request access

Related articles