Volatility Skew Trading

Volatility Skew Trading involves taking advantage of the difference in implied volatility between options with different strike prices. In many markets, including crypto, put options often trade at higher implied volatilities than call options, a phenomenon known as the volatility skew.

This reflects the market's greater fear of a downside move. Traders can exploit this by selling expensive puts and buying cheaper calls or by using spread strategies that profit from the narrowing or widening of the skew.

This strategy is a way to express a view on the market's perception of risk. It is a sophisticated approach that requires an understanding of how market participants price insurance against crashes.

By trading the skew, a trader can generate income or hedge risk more efficiently than by just trading the underlying asset.