Call skew and put skew measure the relative implied volatility — and thus cost — of out-of-the-money options versus at-the-money on one side of an asset. Call skew prices upside protection richer; put skew prices downside protection richer, revealing which tail the market is paying most to hedge.
How it works
Skew is the implied-volatility difference between out-of-the-money and at-the-money strikes, often summarised by a 25-delta risk reversal (IV of the OTM call minus IV of the OTM put). Positive call skew means upside calls trade richer than equidistant puts; positive put skew is the reverse. Equities structurally carry put skew (crash insurance); commodities like crude often carry call skew (supply-shock upside).
Why it matters now
In 2025–2026 a simultaneous spike in crude call skew, S&P put skew and EURUSD put skew signals a single cross-asset risk: markets pricing an energy/geopolitical supply shock that lifts oil upside while threatening equity and risk-currency downside. Watching these wings move in unison flags correlated tail hedging ahead of spot.
Example
In the days after a Middle East escalation, a desk might see Brent 25-delta call skew jump from ~2 vol points to ~6, while S&P 500 three-month 25-delta put skew widens and EURUSD put skew steepens — three different surfaces all bidding the same supply-shock narrative. The dislocation showed in the options surface before spot fully repriced.
Frequently asked
- What is volatility skew?
- Volatility skew is the difference in implied volatility — and therefore price — between out-of-the-money options and at-the-money options on the same asset. It reveals which tail the market pays most to hedge: put skew means downside protection is bid richer, call skew means upside protection is bid richer. It is often summarised by a 25-delta risk reversal.
- Why do equities have put skew but crude oil has call skew?
- Equities carry
Glossary · carry
Carry is the income earned (or paid) for holding a position over time, independent of price change — the coupon, yield, or interest-rate differential captured while waiting. Positive carry pays you to hold; negative carry costs you. It is the return that accrues if nothing moves.
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- How is option skew measured?
- Option skew is most commonly measured by a 25-delta risk reversal: the implied volatility of the 25-delta out-of-the-money call minus the implied volatility of the 25-delta out-of-the-money put. A positive number indicates call skew (richer upside); a negative number indicates put skew (richer downside). Desks quote it in vol points across tenors.
- What does it mean when crude call skew and S&P put skew spike together?
- A simultaneous spike in crude call skew and S&P put skew signals a single cross-asset tail being hedged: a supply or geopolitical shock that lifts oil upside while threatening equity downside. When EURUSD put skew joins, the market is pricing risk-off in the same narrative — often visible in the options surface before spot prices fully move.
- How does skew differ from implied volatility level?
- Implied volatility level is the overall price of optionality; skew is the asymmetry of that pricing across strikes. A surface can have flat overall vol but steep put skew, meaning crash insurance is expensive relative to upside calls even when general uncertainty is low. Level tells you how much vol costs; skew tells you which direction the fear points.