If option pricing models were perfect, every strike for the same expiry would have the same implied volatility. In practice they do not. The pattern across strikes is called the volatility skew.
The usual shape for indices
For equity indices, OTM puts usually trade at higher IV than OTM calls. Investors pay extra for crash protection, and markets tend to fall faster than they rise.
What it means for strategies
- Selling OTM puts collects relatively rich premium, but that premium is paying you to carry crash risk.
- Put spreads can be cheaper than they look, because the put you sell also has high IV.
- A steepening skew is a sign that the market is buying protection.
Skew for single stocks
Individual stocks can show different shapes, especially around events or takeover rumours, when upside calls may carry the higher IV. Always look at the actual IV per strike in the chain.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.