Volatility Skew shows how Implied Volatility (IV) changes across different strike prices. Instead of being uniform, IV is typically lower at ATM and increases towards OTM strikes (forming a "smile" or "skew"). This indicates market perception of risk at different price levels.

Call Skew (Upward): IV rises on call side—market expects upside moves. Put Skew (Downward): IV rises on put side—market fears downside. In Nifty options, put skew is common near support levels (fear of further drops); call skew appears near resistance (bullish momentum expected). Extreme skew can signal reversals or strong directional bias.

IV Smile: U-shaped curve—IV high at both OTM puts and calls, low at ATM. Symmetric risk perception in normal markets. Risk Reversal: Asymmetric curve—IV peaks on one side (call or put side). In Nifty, a risk reversal to downside (put IV > call IV) shows fear; to upside shows bullish bias. Extreme asymmetry often precedes trend reversals.

The Volatility Ratio compares Put IV to Call IV. Ratio > 1 means puts are more expensive (downside risk perceived). Ratio < 1 means calls are more expensive (upside risk perceived). Extreme ratios can indicate fear (high put IV) or greed (high call IV) in the market.

Mean Reversion: Extreme skew (high put/call IV ratio) often reverts—exploit with straddles or ratio spreads. Directional Bias: Put skew = bearish, call skew = bullish—adjust spread selection. Relative Value: Sell overpriced IV side, buy cheaper side—sharp skew creates vol arbitrage. Strangle/Straddle Pricing: Skew distorts breakeven levels differently per side—critical for multi-leg setup.

Live Mode: Real-time skew reflecting current market IV levels - for immediate trading. Historical Mode: Past skew patterns allowing comparison of how skew has evolved and identifying repeating patterns. Track skew changes around earnings, events, or market conditions.

Monitor ATM IV as your baseline for the current vol regime. Track put/call IV ratio changes before/after news, expiry, or strong price moves. Compare skew across expirations (near-month vs next-month)—weaker skew near expiry. Overlay skew with price support/resistance; extreme skew at key levels signals setup reversals. Remember: skew typically flattens post-expiry; highest skew impact mid-expiry. Most opportunities arise when skew is extreme vs. historical average.