Volatility skew

Why volatility skew matters

Volatility skew is the difference in implied volatility between out-of-the-money puts and out-of-the-money calls at the same distance from spot, for one expiry. It's not supposed to be flat — options at different strikes routinely trade at different implied volatilities, and the shape of that difference reflects what the market is actually paying up to hedge against.

In Indian index options, persistent put skew (puts priced with higher IV than equivalent calls) typically reflects structural demand for downside protection — a standing feature of most equity index markets, not unique to any one index.

How to read this chart

The chart plots out-of-the-money IV by strike for the nearest captured expiry — puts on one side of spot, calls on the other. A steep curve away from the at-the-money strike means the market is pricing tail risk aggressively in that direction; a flat curve means options across strikes are priced similarly regardless of distance from spot.

• Put skew (left side steeper) — more IV priced into downside strikes, common ahead of event risk or during risk-off sentiment.
• Call skew (right side steeper) — more IV priced into upside strikes, less common but can appear ahead of anticipated rallies or short-covering setups.

Methodology & data

NSE and BSE don't publish implied volatility directly, so IV here is back-solved per strike from its own last-traded price via Black-Scholes, with the risk-free rate assumed 0 — the same solver behind the gamma exposure page. This page shows one expiry only (the nearest captured), so it's a skew smile for a single expiry, not a full term structure — see IV term structure for that.