Put skew
Definition · Level 2 · Long options & hedges
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The usual pattern in equity and index options: OTM puts trade at higher implied volatility than equally distant OTM calls, making downside protection relatively expensive.
Example
Stock 100, 3-month: the 90 put and the 108 call both cost 1.60, while the 110 call is only 1.10.
Where Tradecraft teaches it
Level 2 · Long options & hedges, in the lesson “Collars and short collars”: Sell upside you don’t need to pay for downside protection you do.
Related terms
- CollarOwn the stock, buy a put below and sell a call above.
- Short CollarThe collar for a short seller: short stock, buy a call above for protection, sell a put below to pay for it.
- Zero-cost collarStock hedge where the premium from a sold OTM call fully pays for a bought OTM put: no upfront outlay, but you give up all upside above the call…
- ArbitrageLocking in a profit, riskless in principle, from a price discrepancy by simultaneously buying the cheap side and selling the rich side of equivalent…
- Borrow feeThe annualized fee a short seller pays to borrow shares (and a lender earns); large on hard-to-borrow names.
- ConversionLong stock + long put + short call, same strike and expiry.