Why do out-of-the-money puts carry more IV?
What does volatility skew describe?
Volatility skew is the fact that options on the same underlying with the same expiration but different strikes trade at different implied volatilities. On equities and indices, puts below the money are typically priced richer than calls above it. Skew is part of the pricing structure every spread pays or collects.
Where the skew comes from
On stocks and indices, demand for downside protection never goes away: shareholders buy puts below the market, and few traders need calls far above it. Large drops also tend to arrive faster than large rallies. The market prices both by assigning higher implied volatility to lower strikes, so the IV curve across strikes for one expiration usually slopes down from the puts to the calls instead of lying flat.
What it does to a spread
A spread buys one strike and sells another, so it trades at two different IVs. In a bull put spread, the put you buy sits further below the money and carries a higher IV than the put you sell. In a bear call spread, the call you sell carries less IV than a put the same distance away would. Two mirrored spreads therefore rarely bring in the same credit. Skew is not a fee, but every spread pays or collects it.
Which IV to enter in a calculator
A calculator that estimates a probability from IV uses one number for one strike. Entering the at-the-money IV for a far put understates how much movement the market prices at that strike, and the probability of the stock reaching it comes out too low. Read the IV of the strike you actually trade from the option chain, for the matching expiration, rather than the headline IV of the underlying.
The common misreading
A steep skew is often read as the market expecting a fall. Mostly it says that downside protection is in demand and expensive, which is the normal state of equity options, not a forecast. The opposite mistake is to treat the richer put IV as easy money for sellers: the higher price pays for exactly the crash risk that created the skew in the first place.
Worked example
Hypothetical numbers for illustration, not a market quote and not a recommendation.
An example stock trades at 100 €. For one expiration, the 90 € put trades at a hypothetical implied volatility of 32 %, the 100 € at-the-money options at 25 % and the 110 € call at 21 %. Both out-of-the-money strikes sit 10 € from the price, yet the put carries 11 points more IV than the call.
To estimate the chance of the stock finishing below 90 €, enter 32 %, not 25 %. With the lower figure, the calculator would show that outcome as less likely than the market prices it. Fees are ignored.
Strategies where the term matters
- Bull Put Spread — Do you want a credit against an obligation - or would you rather pay a debit?
- Jade Lizard — Is the credit genuinely larger than the width of the call spread?
- Collar — Will you accept a hard ceiling in exchange for a hard floor?
Calculators for this term
Track it in your journal
Related terms
Every term in one place: the options glossary.
This material is general information about option strategies, written for a general audience. It is not investment advice, not a recommendation, and not financial analysis. Options can lose their entire value, and uncovered positions can lose more than the amount committed. Anything said about tax is general in nature and is no substitute for professional tax advice. Last reviewed: 2026-08-06.