Volatility Skew
The pattern where implied volatility varies across different strike prices for the same expiration.
Explanation
In equity options, OTM puts typically have higher IV than ATM or OTM calls (negative skew), reflecting demand for downside protection. Skew steepness changes with market conditions: steep skew indicates fear; flat skew indicates complacency. Traders can exploit skew through strategies like risk reversals and ratio spreads.
Example
AAPL 140 put (OTM) has IV of 28%, the 150 ATM options have IV of 24%, and the 160 call (OTM) has IV of 22%. This downward-sloping pattern is typical volatility skew.