This chart displays the implied volatility skew for options of a given symbol and expiration date. Initially, it shows half of the out-of-the-money options centered around the underlying price. You can zoom and pan to explore the full range.
Chart Description
The x-axis represents the strike price of the options, while the y-axis shows the implied volatility. Blue points represent call options, and red points represent put options. The shape of the plot illustrates the volatility skew in the options market. Use your mouse wheel or pinch gestures to zoom, and click and drag to pan the chart.
Understanding the Skew
Flat Skew: If the implied volatility is roughly the same across all strike prices, the skew is considered flat. This suggests that the market expects similar volatility regardless of the strike price.
Smile Skew: A U-shaped curve where both out-of-the-money calls and puts have higher implied volatilities than at-the-money options. This could indicate that the market is pricing in the possibility of large price movements in either direction.
Smirk Skew (or Volatility Skew): Often seen in equity options, where out-of-the-money puts have higher implied volatilities than out-of-the-money calls. This suggests that the market is pricing in a higher probability of a downside move and may reflect investors’ desire for downside protection.
Reverse Skew: Less common, where out-of-the-money calls have higher implied volatilities than out-of-the-money puts. This might be seen in commodities or in situations where there’s fear of upside risk.
Remember, the skew can change over time and may reflect current market sentiment, recent events, or expectations about future price movements.