Is the market paying more for protection contracts (fear) or speculation contracts (optimism)? Sometimes mislabeled as smile distortion; the platform's term is Volatility Skew.
What this skew is
Volatility skew (Volatility Skew) is the difference in implied volatility across strike prices for the same expiration. In equity markets, far puts below the market are priced richer (in implied volatility) than the matching calls above it, so the curve "leans" downward from the left of the chain to the right.
Why it exists at all
Memory of crashes: since 1987 the market has known that drops come in jumps and rallies creep, so insurance against disaster deserves a permanent premium. Skew is the price of that memory. Where it is absent (some commodities, where the risk is to the upside), its direction flips.
How to read it in practice
A steeper skew means frantic demand for protection or reluctance to sell insurance: worry is being priced in. A flatter skew means comfort and calm. Compare it with its historical range (like rank for volatility) and it becomes a usable signal. Skew at its historical highs while price is quiet is a contradiction worth noticing.
Hypothetical example
Two stocks with the same at-the-money implied volatility. The first has a sharp skew (selling 90% below the price costs eight volatility points more) and the second is flat. In the first, the market pays generously for protection. A put-spread seller finds a fatter payment there for nominally the same risk.
Common mistake
Comparing two contracts by implied volatility alone, without looking at where each sits on the skew: the "expensive" far put may be exactly fairly priced in a market whose skew is historically steep.
How to read it relatively, not absolutely
Skew steepness with no reference says nothing. The meaning comes from comparing it with its own historical range on the same asset. Skew at its highs while price is calm is a contradiction worth noticing: someone is paying generously for protection while nothing looks worrying.
Where to see it on the platform
Volatility tools draw the skew curve for each symbol and compare it with its history, and the hedging indicator reads a steepening as a sign of worry.
Volatility tools draw the curve and compare it with its history, and the hedging indicator reads how steep it is.
