Why Moneyness Alone Cannot Determine Put–Call Volatility Skew

Summary

The document asks which option has higher implied volatility under a volatility skew: an at-the-money put with spot and strike at one price level, or an at-the-money call with spot and strike at a higher level. It provides no skew direction, market, maturity, date, or option-price data. Both contracts are described as at the money, but their different underlying price levels do not by themselves establish which implied volatility is higher.

The question therefore illustrates that skew must be interpreted in context. A comparison requires the relevant volatility surface or an explicit convention describing how implied volatility varies with strike or moneyness for the same underlying and expiry. If the options belong to different underlyings or expiries, those dimensions also matter. No answer or evidence is supplied, and the prompt does not support a universal ranking of the two implied volatilities.

Key ideas

• Both options are specified as at the money, but they have different spot and strike levels.
• The document does not state the direction or shape of the volatility skew.
• Moneyness alone cannot determine which option has higher implied volatility across unspecified markets or contracts.
• A meaningful comparison requires the relevant volatility surface and matching underlying and expiry details.

Tags

# Volatility Skew for Put and Call options


# Volatility Skew for Put and Call options












Given that the implied volatility follows volatility skew, which one has higher implied volatility? At-the-money put 40 (spot = strike = 40) or at-the-money call 160 (spot = strike = 160)?

I am not sure how relevant the volatility skew thing is but still, this question is confusing me so much.

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