When put vs. call implied volatilities differ

Can you provide me with some guidance on something that is puzzling me? I apologize if I am missing some basic point.

I have been looking at the current pricing for SPY options and I am noticing that the implied volatilities are much higher for Puts than they are for Calls. The difference in
IV is drastic (36% for puts vs. 18% for calls) for the June options (2 days from expiry) but is also very significant for July options (22% for puts vs 16% for calls)

Can you help me to figure our what is going on? What am I missing? Is this because of some very negative market sentiment?

Thanks in advance for your response.



Hello TR,

You are not missing anything.
Option implied volatilities are skewed. That means they are unequal and in fact, the lower the strike price, the higher the implied volatility (IV).

The major reasons this occurs are
  • Markets fall much faster than they rise
  • As markets rise, there are always people who have stock for sale and that limits the rate at which markets can rally.  Thus, investors are willing to pay less (lower IV) for out of the money calls - because there is a reduced probability that the stock will move far enough.
  • As markets fall, sometimes buyers disappear and losses can be staggering.  Hence people pay more to own out of the money puts.
  • More investors and hedge funds want to own out of the money put options as either insurance against a catasrophic loss or to make a killing if a black swan event occurs.
Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options