Volatility skew is the variation in implied volatility across option strikes for the same underlying asset and expiration, particularly an asymmetric difference between the lower- and higher-strike sides of the option surface. This distinguishes skew from a volatility smile: a smile describes curvature in which implied volatility is relatively high toward both wings compared with the middle of the strike range, while skew emphasizes an imbalance between the two sides. Because implied volatility is inferred from option prices rather than directly observed, both shapes describe how option pricing varies across the strike dimension rather than separate realized-volatility measurements.
Skew describes relative pricing, not a directional forecast
A common downside skew has lower-strike options trading at higher implied volatilities than higher-strike options. In equity-index options, this pattern is often associated with demand for downside protection and perceived downside-tail risk, while other markets or regimes can show flatter or upward-sloping relationships. Hedging demand, option supply, positioning, perceived tail exposure and other market-structure effects can all contribute. A steep downside skew therefore shows that downside option volatility is relatively rich; by itself, it does not prove that the underlying is expected to fall or reveal why the pricing difference exists.
There is no single universal skew number
“Skew” can describe the broader cross-strike asymmetry or a statistic constructed from selected parts of that pattern. One common approach compares the implied volatilities of an out-of-the-money put and call at matched absolute deltas, producing a risk-reversal measure. Other methods estimate asymmetry from a wider set of strikes or from separate measures of the put and call sides of the option surface. Those constructions can produce different values from the same market data.
For that reason, a reproducible skew series requires its convention to be specified. Expiration, strike, moneyness or delta coordinates, option selection, normalization and any interpolation or surface-construction method can affect the result. This also distinguishes volatility skew from volatility term structure: skew compares relative implied volatility across strikes within an expiration, whereas term structure compares volatility across expirations. Two markets can therefore have similar at-the-money implied volatility yet materially different pricing of their downside and upside wings—a difference that a single headline volatility number will not reveal.