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Investments glossary

Volatility Skew Definition

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Everyone got caught up in the debate of deflation, Greece and the Ukraine crisis and so expectations were quite low, it now seems the deflation story is a positive one for the euro zone since cheaper oil means consumers spend less on energy and have more money in their purse.

— Christian Schulz

The volatility skew is the difference in implied volatility (IV) between out-of-the-money options, at-the-money options, and in-the-money options. The volatility skew, which is affected by sentiment and the supply and demand relationship of particular options in the market, provides information on whether fund managers prefer to write calls or puts.


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