Volatility Smile
The volatility smile is an essential concept for any options trader. By examining how implied volatility varies with different strike prices, traders can gain insights into the market’s expectations for future price movements.
Tail Risk
The volatility smile gives us a clear view of how implied volatility (IV) changes both the put (left) and call (right) tails.
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A rising left tail signals growing demand for downside protection (fear).
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A rising right tail shows interest in upside exposure (speculation or breakout expectations).
Historical Comparison
Track how market sentiment evolves over time. By comparing today’s curve with those from yesterday, 5 days ago, and 1 month ago, we can see how implied volatility has shifted over time.
