IV skew is the difference in implied volatility between OTM puts and OTM calls. In Bank Nifty, puts usually carry higher IV (downside fear). When skew steepens (puts much pricier), the crowd expects a drop; when it flattens, complacency.
As a feature, iv_skew equals iv_otm_put minus iv_otm_call, z-scored over 60 days. The model flags extreme skew as a regime filter — block trades when skew z exceeds 2.5 (crowd panic) because mean-reversion traps retail. Skew is not a trade; it is a context dial.
Q: What is IV skew?
A: The IV gap between OTM puts and OTM calls, reflecting downside fear.
Q: Why are puts usually pricier?
A: Markets price downside protection more heavily; fear is asymmetric.
Q: How is skew used as a filter?
A: As a z-scored feature; extreme skew near 2.5 blocks new entries to avoid panic traps.
Q: Is skew a trade signal?
A: No — it is context; combine with OI, PCR and the risk filter.
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By Shakti Tiwari · Options AI research pillar. NISM XII certified. Educational only, not investment advice; verify before acting.