Skew in Crypto Options: What the Smile Tells You
Options at different strikes trade at different implied volatilities. The shape of that curve reveals where the market fears — or hopes for — large moves.
If returns followed the simple assumptions of the Black–Scholes model, options at every strike would share the same implied volatility. In practice they do not. Plotting implied volatility against strike produces a curve whose shape encodes the market’s view of tail risk.
Smile and skew
A smile — higher implied volatility for both low and high strikes — indicates the market prices fatter tails in both directions. A skew — higher volatility on one side — indicates asymmetric concern. In equity index options, downside puts are persistently more expensive. Crypto has shown both patterns at different times, with call skew appearing during strong upside speculation.
- Compare skew at a fixed delta, not a fixed strike, so readings are comparable as price moves.
- Track skew by expiry: short-dated skew reacts faster to events.
- Watch for skew changes that diverge from spot direction — they can indicate shifting hedging demand.
This publication is provided for informational purposes only and does not constitute investment, legal, or tax advice, or an offer or solicitation to buy or sell any asset. Live figures are computed from third-party public market data and may be delayed, incomplete, or inaccurate.
