Volatility Smile

Options Trading

Definition

A pattern in options implied volatility where out-of-the-money options have higher implied volatility than at-the-money options, creating a smile-shaped curve when plotted against strike prices.

Key Points

Higher IV for out-of-money options
Reflects crash protection demand
Varies by market conditions

Examples

Put options often show higher IV than calls

Smile steepens during market stress

Quick Info

Related Terms

Explore related financial concepts

Put Call Ratio

The ratio of put options trading volume to call options trading volume, used as ...

Options Sentiment

Measures of investor sentiment derived from options trading activity, including ...

Browse More

All Terms Back to Dashboard