This 8-Minute Video Will Explain Why Your Call Spread Pays More Than Your Put Spread. Every Time.

Why It Matters

Understanding volatility skew lets option traders capture superior premiums and avoid overpriced risk, directly boosting profitability and risk management in both index and single‑stock strategies.

Key Takeaways

• Volatility skew causes OTM puts to be pricier than OTM calls.
• Selling naked puts yields higher premiums due to higher implied volatility.
• Put spreads are cheap; call spreads are expensive because of skew reversal.
• Individual stocks like AMD can exhibit upside skew, reversing the pattern.
• Use skew to identify cheap vs expensive options for defined‑risk trades.

Summary

The video walks through why, in practice, an out‑of‑the‑money call spread often commands a higher credit than an otherwise symmetric put spread, attributing the difference to volatility skew across the option chain.

Volatility skew describes the fact that implied volatilities vary by strike; indexes typically show higher IV on OTM puts because investors buy crash protection, while high‑growth stocks can show higher IV on OTM calls. This asymmetry makes naked puts more lucrative and flips the pricing for defined‑risk structures.

Using the Dow Jones ETF (DIA) as an example, the host shows a 485‑480 put spread earning $1.37 versus a 500‑505 call spread earning $2.10 despite similar probabilities. In AMD, the IV rank of 84 reveals upside skew, where OTM calls are pricier than puts, illustrating the opposite dynamic for volatile equities.

Recognizing where volatility is expensive lets traders sell premium‑rich options and buy cheap ones, optimizing risk‑adjusted returns. The insight guides the choice between naked versus spread positions and helps allocate capital in markets where skew shifts between downside and upside bias.

Original Description

Options trading gets sharper the moment you understand volatility skew. Every strike on the chain carries its own implied volatility, and that difference is not random -- it tells you exactly what is cheap and what is expensive before you ever place a trade.

This episode of Calculated Risk walks through put skew on the Dow Jones and call skew on AMD, and shows a live side-by-side comparison of a put spread versus a call spread at similar probabilities. The call spread pays significantly more. That is skew working in your favor, and it changes how you build every strategy going forward.

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CHAPTERS:

00:00 What is volatility skew and why every strike is different

01:07 Why out of the money puts carry higher IV than calls

01:39 The persistent demand for crash protection drives put skew

02:15 Live example on DIA - comparing the 470 put vs the 510 call

03:40 Put spread vs call spread at similar probabilities - the comparison

05:22 Why the call spread collects more than the put spread

06:27 AMD and upside call skew - when individual stocks flip the script

07:52 How to use skew to always sell expensive and buy cheap

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