title: Volatility Skew description: Volatility skew is the difference between implied volatility across strikes. Learn how skew reveals hedging demand and what it tells you about market fear. date: 2026-08-02 category: Options Market Structure related: [vanna, gamma-exposure]
Volatility Skew
Volatility skew is the difference in implied volatility between out-of-the- money puts and calls at the same expiration. It is the market's fingerprint of hedging demand — and one of the most underrated signals in options flow.
What skew tells you
In equity markets, downside puts are usually priced with higher implied volatility than upside calls. That is skew. It reflects that institutions pay up for downside protection, and dealers must be compensated for carrying that risk.
- Steepening skew — rising demand for protection; markets are fearful.
- Flattening skew — protection is cheap; markets are complacent.
- Skew inversions — a rare, aggressive signal often seen around major events.
Why traders watch skew
Skew is a leading indicator of positioning stress. It confirms whether a breakout is backed by institutional hedging demand or is just retail noise. Combined with vanna and gamma, it paints the full dealer flow picture.
Related terms
DealerFlow Terminal displays skew, term structure, and the implied vs. realized spread in one view — the same data institutional vol desks track. Request access through the waitlist.