Volatility Skew

Volatility skew refers to the asymmetry in implied volatility across different strike prices for options of the same expiry—where put options at lower strikes carry higher implied volatility than equidistant call options at higher strikes. This downward skew reflects investors' greater demand for downside protection (buying OTM puts to hedge portfolios) relative to upside speculation. In Indian index options markets—particularly for Nifty—a persistent negative skew (put skew) is a structural feature, as institutions and retail investors routinely purchase OTM puts as portfolio insurance. Traders use skew analysis to identify mispriced options relative to the overall volatility surface and to structure risk-efficient hedging and spread positions.