LEARN — VOLATILITY
Implied volatility is not the same for every option. Out-of-the-money puts almost always have higher IV than out-of-the-money calls. This asymmetry — called skew — reveals the market's fear of downside moves and shapes dealer hedging dynamics.
In a perfect theoretical world, all options on the same stock with the same expiration would have the same implied volatility. In reality, they do not. Out-of-the-money put options almost always have higher IV than out-of-the-money calls. When you plot IV against strike price, the result is not a flat line — it is a curve that tilts downward to the right. This tilt is called volatility skew.
Skew exists because of demand. Institutional investors, hedge funds, and portfolio managers buy OTM puts to protect their portfolios against market crashes. This demand drives up put prices, which drives up put IV. On the other side, investors routinely sell covered calls against stock positions, which supplies call options to the market and keeps call IV lower.
This pattern has existed since the 1987 crash. Before Black Monday, the volatility curve was relatively flat. After the crash, when the Dow Jones lost over 22% in a single session, markets permanently repriced tail risk. OTM puts have carried a premium ever since — a structural reminder that extreme downside events happen more often than normal distribution models suggest.
Rising skew means OTM puts are getting more expensive relative to calls. The market is paying more for downside protection. This often happens ahead of known risk events, during selloffs, or when institutional hedging demand increases.
Falling skew means put prices are declining relative to calls. Hedging demand may be fading — either because the risk event has passed or because the market is growing complacent.
Skew inversion — when calls become more expensive than puts at symmetric distances from ATM — is rare and often indicates extreme speculative demand for upside exposure.
Skew directly affects vanna dynamics. When skew is steep (puts are very expensive), the vanna exposure is asymmetric — IV changes on the put side create larger hedging adjustments than equivalent changes on the call side. This means post-event volatility collapses can trigger larger buying flows when skew is steep, because the vanna from the put side is dominant.
Skew Dynamics monitors three measurements throughout the session: the 25-delta skew (comparing moderately OTM puts and calls), the 10-delta skew (comparing deep OTM options), and the ATM skew (the difference between ATM put and call IV). Session history shows how these evolve intraday — revealing shifts in hedging demand that are not visible in price alone.
Gamma Sonar recomputes GEX from live greeks every 60 seconds on SPX, SPY, QQQ, and major indices — plus 90+ additional tickers on 5-minute cycles.
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