Implied volatility skew

Which wing is bid, and what that is worth knowing

Two options equally far from the money do not carry the same implied volatility. On an equity index the downside is almost always dearer: puts price above calls. That asymmetry is the skew, and its shape is information about what the market is paying to be protected from.

Measuring it: the 25-delta risk reversal

The clean way to quote skew is to compare two options at equal delta rather than equal distance — the 25-delta put's implied vol minus the 25-delta call's. Positive is the ordinary shape: downside paid up for. Negative means calls are bid over puts, which on an index is an upside-chase tell rather than calm.

Delta rather than percent moneyness matters more than it sounds, and specifically at 0DTE: with hours to expiry a strike 1% away is worth pennies and its implied vol is mostly noise. Fixed-delta sampling keeps the measurement on contracts that actually carry vega.

Why skew moves the hedge

Skew is not just sentiment — it is an input to dealer positioning. When implied volatility moves, every option's delta moves with it, so the hedge must be adjusted for a reason that has nothing to do with price. That sensitivity is vanna, and it is why a vol move can force real flow in a market that has not gone anywhere. See vanna and charm.

What we measured

The popular use of skew is as a contrarian marker: an extreme reading is supposed to precede a reversal. We tested it on 506 sessions, matched for the move that preceded the reading and with an explicit multiple-testing bar — because "an extreme precedes a turn" is the kind of claim that finds itself if you look at enough thresholds. The result is in the post, along with the far more important detail of where in the session it lives and how small it is. The terminal shows today's reading as a percentile of the session's own range for that reason: it is context, not a signal, and it is labelled as such.