What Is Options Skew and the Put/Call Ratio?

By Kresmion Research, July 14, 2026

Options skew is the gap in implied volatility between put options and call options at the same expiration, while the put/call ratio is the number of puts traded or held divided by the number of calls, and together they describe how much demand sits behind protection versus participation in the options market.

Both numbers come from the same place: the market for options, where investors buy the right to sell (a put) or the right to buy (a call) an asset at a set price by a set date. Because options are priced partly on how much movement the market anticipates, their prices carry information about sentiment and positioning. Skew and the put/call ratio are two of the most common ways to read that information. This explainer covers what each one is, how people interpret it, and why it describes demand rather than predicting where a price will go.

What implied volatility measures

Every option has a price, and part of that price reflects how much the market thinks the underlying asset could move before the option expires. Implied volatility is the volatility figure that an option's current price implies. It is not a measurement of past movement (that is realized, or historical, volatility). Instead, it is derived by taking the market price of the option and working backward through a pricing model to find the volatility input that would produce that price.

A higher implied volatility means the option costs more, because larger anticipated swings make the right to buy or sell more valuable. A lower implied volatility means the market is pricing in calmer conditions. Implied volatility is quoted as an annualized percentage, and it changes constantly as option prices move with supply and demand.

The key idea is that implied volatility is a market-set expectation, not a fact about the future. It tells you what buyers and sellers are collectively willing to pay for optionality right now. When demand for a particular option rises, its price rises, and its implied volatility rises with it. That link between demand and implied volatility is what makes skew and the put/call ratio readable.

What options skew is: the volatility smile and smirk

If markets treated every option the same way, all options on one asset at one expiration would share a single implied volatility. In practice they do not. Options at different strike prices carry different implied volatilities, and plotting implied volatility against strike price produces a curved line rather than a flat one. That curve is where the terms "volatility smile" and "volatility smirk" come from.

In many equity and index markets, the curve slopes so that puts struck below the current price carry higher implied volatility than calls struck above it. This asymmetry is options skew. It exists because a large share of investors want protection against a fall in the value of what they own, and they buy put options to get it. Steady demand for those puts pushes their prices up, which raises their implied volatility relative to calls. The result is a "smirk," a curve tilted toward the protective side rather than a symmetric smile.

The steepness of the skew is itself a signal watchers track. A steep skew means the market is paying a wide premium for protection against a drop compared with participation in a rise. A flatter skew means that gap has narrowed. Skew can be measured in several ways, such as comparing the implied volatility of a put and a call a set distance from the current price, or with published indices that summarize the tilt of the whole curve.

Skew and dealer positioning are closely linked, because the same options that create the skew also sit on the books of the market makers who sold them. Kresmion's dealer gamma exposure tool maps where options positioning is concentrated across strikes, which pairs closely with skew because both are read straight from the options market. You can read more in the companion explainer on dealer gamma exposure.

What the put/call ratio measures

The put/call ratio is simpler arithmetic than skew, but it points at a related idea: relative demand for puts versus calls. It is calculated by dividing put activity by call activity. Two versions are common. The volume put/call ratio uses the number of contracts traded over a period, so it reflects fresh flow. The open-interest put/call ratio uses the number of contracts currently outstanding, so it reflects standing positions that have not yet been closed.

A ratio above 1 means more puts than calls (by volume or open interest). A ratio below 1 means more calls than puts. Because puts are the standard instrument for protecting a holding against a fall, a rising put/call ratio is often read as a sign that hedging demand or caution is increasing. A falling ratio is often read as the opposite, with participants leaning toward calls.

Ratios are usually compared against their own recent range rather than a fixed threshold, because a "normal" level differs across single stocks, broad indexes, and asset classes. Some data providers publish an equity-only ratio, an index-only ratio, and a total ratio, and these can tell different stories. Index puts, for example, are heavily used for portfolio protection, so an index put/call ratio can stay elevated for reasons that have little to do with any view on a single company.

How people read both, and the limits

Skew and the put/call ratio are usually read together as gauges of how much the market is paying for, and positioning around, protection. A steep skew and a high put/call ratio both point to heavy demand for puts, which is why both are commonly described as fear or hedging gauges. When protection is in strong demand, its price and its share of activity climb together.

The important caveat is that these are positioning and demand measures, not forecasts of direction. A high put/call ratio can mean two quite different things: investors buying puts because they are worried, or long-term holders routinely hedging positions they intend to keep. The ratio alone cannot tell you which. The same is true of skew, which reflects the cost of protection rather than a prediction that a fall will happen. Heavy hedging can coincide with a calm or rising market, because buying insurance is not the same as selling the asset.

There are also mechanical quirks. Very high readings are sometimes read by contrarians as a sign of crowded positioning, on the reasoning that once nearly everyone has hedged, the marginal seller of protection has thinned out. That is an interpretation, not a rule, and it does not always hold. Skew and the ratio are best treated as one input among many, describing the state of the options market at a moment in time rather than telling you what comes next.

Key takeaways

Frequently asked questions

Is a high put/call ratio a warning sign?

Not on its own. A high put/call ratio shows that puts are seeing more activity than calls, which reflects strong demand for protection or hedging. That demand can come from worry, but it can also come from long-term holders who routinely insure positions they plan to keep. The ratio describes flow and positioning, so it is read alongside other information rather than as a standalone warning.

Why do puts usually have higher implied volatility than calls?

In many equity and index markets, a large pool of investors wants protection against a decline in what they hold, and they buy puts to get it. That persistent demand lifts put prices, and higher prices translate into higher implied volatility. Calls struck above the current price tend to see less of this steady protective demand, so their implied volatility sits lower. The resulting asymmetry is what skew captures.

What is the difference between volume and open-interest put/call ratios?

The volume version divides puts traded by calls traded over a chosen period, so it reflects fresh activity and can swing quickly. The open-interest version divides puts outstanding by calls outstanding, so it reflects standing positions that have not been closed and moves more slowly. Volume shows what is happening today; open interest shows what has built up over time. Watchers often look at both to separate a burst of new trading from a durable shift in positioning.

Does skew predict which way a price will move?

No. Skew measures the relative cost of protection across strike prices, not the direction an asset will take. A steep skew says the market is paying a wide premium for puts, which reflects demand for insurance rather than a forecast that a fall is coming. Heavy hedging can persist even while a market stays calm or climbs, so skew is best read as a gauge of positioning and cost, not a directional call.

Sources

• CBOE, education materials on implied volatility and the volatility smile/smirk in listed options.
• CBOE, published put/call ratio data (equity, index, and total), used as a standard reference for options activity.
• Kresmion market-intelligence data, dealer gamma exposure tool mapping where options positioning is concentrated across strikes.
• Kresmion Research, companion explainer: dealer gamma exposure.