Long and Short Volatility Skew Positions

Summary

The document clarifies the terminology of trading volatility skew. It describes a long-skew position as exposure to a steeper negative implied-volatility slope: typically long an out-of-the-money put and short an out-of-the-money call, positioning for lower-strike implied volatility to rise relative to higher-strike implied volatility.

The explanation is qualitative and offers no pricing model, payoff analysis, or market evidence. The position’s result depends on how the skew changes, and the paired options also carry other exposures, including volatility level and underlying price risk. The question’s description of positive skew is internally inconsistent, so the answer’s explanation applies specifically to negative skew and should not be generalized to every skew convention without defining axes and signs.

Key ideas

• Long skew commonly means positioning for negative implied-volatility skew to steepen.
• A typical structure buys an out-of-the-money put and sells an out-of-the-money call.
• The position seeks relative volatility changes between lower and higher strikes.
• The document does not analyze the effects of other option exposures or provide empirical evidence.

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# Long vs Short Volatility Skew


# Long vs Short Volatility Skew












This question is purely on the structure or maybe even jargon of being long or short volatility skew. Realistically, we do know that when we are long skew, we are long an OTM put and short an OTM call, generally speaking.

But why is that?

Thinking in terms of skew, you are:

- Negative skew if your vol skew is downward sloping

- Flat skew if your vol skew is flat

- Positive skew if your vol skew is downward sloping

However, longing an OTM put and shorting an OTM call has the effect of going long vol at lower strikes and going short vol at the higher strike, betting that vol skew is going more negative effectively.

My question is what exactly does it mean when we buy skew or sell skew, and have I got the graphical relationship wrong?

## Answer by KaiSqDist (score 2, accepted)

https://quant.stackexchange.com/a/80878

My question is what exactly does it mean when we buy skew or sell skew, and have I got the graphical relationship wrong?

To go long skew simply means that the negative skew becomes "more downward sloping" and thus you go long (short) OTM puts (calls) that represent the left (right) ends of the skew to profit from the steepening. To illustrate with a Figure:

Also, this link might be useful: Does skew flatten with a decline in volatility?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.