Metric reference

Implied Volatility and Skew Explained — Smile and Term Structure

Learn how Bitcoin implied volatility, 25-delta risk reversals, butterflies and the term structure are built, how they differ from DVOL, and how to read them without overclaiming.

Read iv and skew live on Bitcoin options, merged across Deribit, OKX, Bybit and Binance.

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What iv and skew actually measures

Implied volatility is the volatility that makes a model price equal an option’s market price. It is the market’s price for movement, annualised, and it differs by strike and by expiry, which is why a single number never describes an options market.

Skew describes how implied volatility changes across strikes. The 25-delta risk reversal is the implied volatility of the 25-delta call minus that of the 25-delta put: negative means downside protection is priced above upside exposure. The 25-delta butterfly is the average of the two wings minus at-the-money volatility, a measure of how much the tails are priced.

The term structure is at-the-money implied volatility by days to expiry. It normally rises with maturity; when near expiries trade above far ones, the market is paying for movement now. A constant 30-day figure interpolates between listed expiries so that readings on different days are comparable.

Core relationship

RR25 = IV(25Δ call) − IV(25Δ put) · BF25 = ½[IV(25Δ call) + IV(25Δ put)] − IV(ATM) · σ²₃₀ interpolated in σ²·T

The data contract

Before comparing two values, make sure they answer the same question.

Deltas and at-the-money must be measured against each expiry’s forward, not spot; on long-dated expiries the difference moves strikes noticeably.
Constant-maturity volatility should be interpolated in total variance, not in volatility, and only between expiries that bracket the target.
Venues publish volatility in different units — Deribit in percent, others as fractions — and each marks its own book; averaging venues produces a smile no venue quotes.
A 25-delta or 10-delta figure needs listed contracts on both sides of that delta; without them the honest value is empty.

Read it in combinations

Observed together	Plausible interpretation	What would contradict it
ATM IV rising · risk reversal more negative · price falling	Demand for downside protection is increasing with the decline.	Implied volatility rises while skew turns towards calls, pointing to upside demand instead.
Term structure inverted · front IV well above back	Stress or an event is priced into the near dates.	The inversion sits only in an expiry hours from settlement, where volatility marks are noisy.
IV well above realised volatility · price in a range	Options are pricing more movement than the market has delivered; premium sellers are being paid.	A scheduled catalyst inside the window justifies the premium.
Risk reversal turning positive · call flow bought	Upside exposure is being paid for, and the flow confirms the skew move.	The calls are sold by customers overwriting, and the skew move comes from put selling instead.

A reproducible workflow

01
Read the level
Compare 30-day at-the-money implied volatility with its recent range and with realised volatility over a similar window.
02
Read the direction
Check the 25-delta risk reversal at thirty days and whether it is moving towards puts or towards calls.
03
Read the shape through time
Look at the term structure for inversion and at the surface to see whether one wing is steepening across dates.
04
Confirm with flow
Check whether traded premium supports the move: skew changes driven by aggressive buying mean something different from ones driven by quote adjustments.

Common interpretation errors

Reading a single implied volatility number as the whole options market.
Comparing strikes across expiries instead of deltas.
Averaging implied volatility across venues into one smile.
Interpolating a constant-maturity figure in volatility rather than variance, or extrapolating beyond listed dates.

Questions

What is the difference between DVOL and ATM implied volatility?+

DVOL is Deribit’s 30-day volatility index, built from options across strikes in the manner of a variance index. At-the-money implied volatility uses the strikes around the forward only. They usually move together, and DVOL tends to sit slightly higher because it includes the wings.

Why is crypto skew usually negative?+

Because holders of the underlying buy puts for protection and sell calls for income, which makes puts relatively more expensive. Periods when skew turns towards calls are notable precisely because they reverse that habit.

Does high implied volatility predict a big move?+

It prices one. Implied volatility is what the market charges for movement; realised volatility is what happens. The gap between them, not the level alone, tells you whether options are expensive or cheap after the fact.

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