What Is Options Skew?
Options skew measures the difference in implied volatility (IV) between equidistant out-of-the-money puts and calls. Positive skew (puts more expensive than calls) indicates the market is paying a premium for downside protection, reflecting bearish sentiment or hedging demand. Negative skew (calls more expensive) indicates bullish positioning, with traders willing to pay more for upside exposure.
How Options Skew Works
Skew is calculated as the IV of 25-delta puts minus the IV of 25-delta calls. A skew of +5 means puts are 5 volatility points more expensive than calls. In traditional markets, skew is persistently positive (puts are always more expensive due to crash risk). In crypto, skew fluctuates between positive and negative, making it a more dynamic sentiment indicator.
Why It Matters for Traders
Options skew is one of the best real-time sentiment indicators because it represents where sophisticated money is actually positioned, not just what people are saying. Extreme positive skew (puts much more expensive than calls) indicates fear and heavy hedging, which is often contrarian bullish. Extreme negative skew (calls much more expensive) indicates euphoria and speculative call buying, which is contrarian bearish. Monitoring 25-delta skew across BTC and ETH options provides insight into institutional positioning that is unavailable from spot or futures data alone.