One of the most important concepts to understand for us is skew, specifically Put Skew, as we routinely use it to our advantage. Options trading beginners may assume that options at equidistant strike prices from the current underlying price should have similar pricing characteristics. But the options market is dynamic and is influenced by volatility perceptions which can skew the mathematical calculations. Market forces impact volatility by expressing directional views, and this influences the shape of implied volatility across strikes. Put Skew by definition refers to out-of-the-money (OTM) Puts trading at higher implied volatility (and therefore higher prices) than equidistant OTM Calls.
To grasp Put Skew, start by examining an options chain. For many underlyings, if you compare implied volatility across strikes, you will notice that equidistant strike Puts have noticeably higher implied volatility than Calls. For example as of 12/11/2025 in the overnight session, SPY is trading at 689.15. In the 1/9/2026 calendar, the -0.15 Delta Put at 658 (IV is at 16.33%) has a mid-price of 2.57. So if there was no skew, you would expect the equidistant Call at 720 to have a 0.15 Delta (IV around 16.33%) with a mid-price of 2.57, right? BUT NO, the 720 Call has a 0.06 Delta, 9.89% IV, and 0.49 mid-price (lower delta, IV and premium). This difference in implied volatility is the Put Skew. So why is this good for us? Because you can sell a Call that is 31 points out of the money and make $49, or you can sell a Put that is 31 points out of the money and make $257. Obviously, selling the Put is more favorable for many reasons. The long term trajectory of stocks is up and we have been in a perpetual bull market really since 1982 (with brief recessions and Bears intermittent). While we don’t “know” anything regarding price, especially over the next 28 days for SPY, there is typically around a 60% chance of prices flat or up based on historical analysis. So why does this make any sense? We objectively have a higher chance of the trade moving in our direction and we make over 5X the premium by trading the Put vs. the Call. So what gives? We are taking advantage of fear. The main reason is that markets fear sharp downward moves far more than sharp upward ones. Most stocks tend to move upward more slowly but can fall quickly during panic or uncertainty or a negative binary event (earnings call, lawsuit, analyst downgrade, etc.). This asymmetry in perceived risk creates outsized demand for downside protection, particularly from institutions like pension funds, hedge funds, and insurance companies. When the market favors protection, OTM Put demand increases, and their prices rise relative to Calls equidistant from the current price.
Historically, this protection demand has been reinforced by painful market crashes like 1987, the dot-com bust, 2008, COVID-19, and other sharp selloffs. Each one taught traders that downside risk can be sudden and severe. As a result, markets tend to overprice the probability of large declines compared to what models like Black-Scholes would predict. That systematic overpricing is seen in higher implied volatility on downside strikes, so Put Skew is the market’s fear premium. So when we sell these Put Credit Spreads we are taking advantage of this market phenomenon, and when we sell out at a max loss of 200% we mitigate the negative effects of the outsized downside moves.
This is why I no longer trade Iron Condors. I noticed that over time the Call side of my Iron Condors were often tested or penetrated, and I lost on the Call side much more frequently than on the Put side. Call spreads are cheaper because OTM calls trade at lower implied volatility. So, on equidistant Iron Condors I was only making a fraction of the premium on the Call side compared to the Put side. That seemed like a losing proposition to me, so I just dropped the Call side altogether and moved exclusively to Put Credit Spreads.
The Put Skew that we take advantage of is typically constant for all of the stock based underlyings that we trade (QQQ, IWM, SPY, DIA, SMH and XBI). However, the non-stock based underlyings behave a little differently. For example, when you look at GLD, you see moderate Call skew. GLD shows Call skew due to market forces. The market sees risk to the upside due to Gold’s commodity characteristics. These forces include upside panic buying, inherent value in the asset, market hedge demands, and producer commodity supply constraints. So, often when stocks go down rapidly, people flee to safety in gold. IBIT also behaves like GLD in that it also has Call skew, although you can make the argument that it has no inherent value as a commodity. The VIX has the highest degree of Call skew of any of the underlyings that we trade. The VIX consistently has Call skew because it can explode higher during market stress, it has a built in floor price (~10), and traders aggressively buy upside VIX calls as crash insurance. TLT and IYR are typically fairly balanced with some minor Put Skew. Lastly, USO surprisingly has some Put Skew. Due to global market forces oil often collapses faster than it rallies due to supply shocks, demand crashes, storage constraints and macro deflationary principles. Oil can plunge 10% or more in a short period so traders fear the downside more, leading to increased Put demand and Put Skew. Therefore, the non-stock based underlyings all behave a little differently with varying degrees of Put and Call Skew, but we include them in this system precisely because they behave differently. This behavior offers you some built in diversification. The underlyings are less correlated, non correlated, or in some cases negatively correlated (VIX) to the broad based stock indexes that we trade, so in general they are offering underlying diversification. So the varying degrees of skew are in some cases helpful (USO) and in others not so helpful (GLD), but on balance their diversification benefits outweigh the skew drawbacks; therefore we choose to go with these 12 underlyings. That’s why it is so important to trade all 12 underlyings in order to get the full benefits of the Put Path Options Trading System.
From a practical standpoint, skew is important because it is a gauge of market sentiment. A sudden increase in downside skew often signals rising fear or uncertainty, even if the underlying price hasn’t moved much yet. Many professional traders watch changes in skew closely, because skew reveals where the market’s panic premium is showing. If Put Skew increases in our stock underlyings, it typically signals increased demand for downside protection, and if it flattens it signals complacency or confidence. Watching Put Skew and the VIX closely gives you a sense for market sentiment. Put Skew deeply affects how options traders evaluate risk. In a perfect Black-Scholes world, implied volatility is would be constant for all equidistant Put and Call strikes. But because skew exists in reality, we must adjust expectations due to market forces which skew the mathematical calculations of standard normal curve probability distributions. Steep Put Skew indicates the market is pricing in a greater likelihood of tail events (large downward moves) than a normal distribution would predict.
Skew is a market indicator of risk. Selling OTM Puts are favorable for us because they are high in Implied Volatility and Premium, but remember that part of the rationale for why they are high is that the market perceives them as carrying the most catastrophic risk during a large drawdown (see my previous post on Black Swan Events). You can theoretically lose the max on these Put Credit Spreads if you don’t monitor your positions closely and sell out at 200% loss. Don’t blow up your account by getting caught during a sharp drop off. Remember, Put Skew is high for a reason and it exists to price in fear. You’ve got to respect market forces and close out positions quickly when they don’t go your way, which fends off large losses with the Put Credit Spreads.
In summary, Put Skew is one of the most fundamental and important features of options markets, and we try to use it to our advantage using the Put Path Options Trading System. Put Skew reflects the market’s natural fear of sudden downside moves. Put Skew signifies higher implied volatility and premium prices on OTM Puts due to demand for protection, and it provides insight into how institutional traders think and how risks are priced. We use Put Skew to our advantage by selling these higher priced options to take advantage of the higher premium and use the probabilistic advantages that our positions will remain out of the money, while also being cautious and monitoring these positions and closing them early if they move against us. Hopefully this post helped you understand more about strike prices, skew, and market sentiment, which all factor into selling premium. While this concept can seem complex for beginners, the more you trade you can hopefully harness its benefits, while avoiding the pitfalls. Please leave a comment below to keep the conversation going or ask questions!
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