Why different strikes have very different premiums for the same stock and expiry

General
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Ever wondered why some strikes look “costly” while others look “cheap” even though they belong to the same stock and expiry? This is not random. It’s because of something called skew in the option chain.
What is skew?

Skew simply means implied volatility (IV) is not the same across strikes. In plain words: the market is charging different “premiums” depending on the strike.

  • If downside protection is in demand → puts (especially OTM puts) have higher IV. This is called put skew.

  • If upside calls are in demand (often in sharp rallies) → OTM calls have higher IV. This is call skew.

  • Before big events, sometimes both sides are high → looks like a “smile” on the IV chart.

Why it matters to you

If you buy an option on the “expensive” side, you’re paying more than usual. If you sell on the expensive side, you collect more but also carry more risk (market is warning you).

How to spot skew on the option chain
Take the current NIFTY option chain (7 Oct expiry, spot ~24,840):

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  • 24,600 Put IV = 8.77 vs 24,600 Call IV = 9.06

  • 24,900 Put IV = 6.88 vs 24,900 Call IV = 7.06

Notice how OTM puts are quoting higher IV than the OTM calls. This is a mild put skew i.e. the market is pricing in more fear of a down-move than an up-move.

How to use this information

  • Bearish view when puts are rich: Instead of buying a far OTM put (expensive), prefer a bear put spread → buy ATM/small ITM put, sell OTM put. The richer OTM helps reduce your cost.

  • Bullish view during call skew: If OTM calls look expensive, prefer a bull call spread instead of naked OTM call buying.

  • Neutral view: If one side is much richer, you can sell a credit spread on that side (defined risk), but always size carefully.

Quick checklist for skew trades

  1. Compare IV of OTM puts vs OTM calls (1–3 steps away from spot).
  2. If puts > calls → put skew; if calls > puts → call skew.
  3. Align your structure: buy cheap side, sell rich side (always with protection).
  4. Avoid naked shorts; use spreads.
  5. Check liquidity before entering.

Bottom line

Skew is simply the market telling you which strikes are “overpriced” and which are “underpriced.” Learn to spot it in the IV column. Then tilt your strategy: buy where it’s cheap, sell where it’s rich (with protection). That way you’re not just trading direction, but also trading smarter with what the market is already pricing in.