The volatility surface is a three-dimensional representation of implied volatility plotted across different strike prices and expiration dates for options on the same underlying asset. Rather than a single implied volatility number, the surface shows how implied volatility varies — typically higher for out-of-the-money puts (the volatility skew) and for longer-dated options (the term structure). For Nifty 50 options traders in India, the volatility surface reveals the market's collective pricing of risk across all strikes and expiries simultaneously. A steep skew in the volatility surface indicates strong demand for downside protection. Traders use the volatility surface to identify relative value — options that appear cheap or expensive compared to the broader surface — and to construct hedging strategies that are robust across multiple scenarios.
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