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Glossary
Volatility Smile Chart
Definition
The Volatility smile chart refers to the shape of the graph. The ‘smile’ shape results from plotting the strike price, which is the fixed price at which the owner can buy or sell the option, with the implied volatility of a group of options with the same underlying asset and expiration date.
Implied volatility rises when the underlying asset of an option is further out-of-the-money (OTM) or in-the-money (ITM) compared to at-the-money (ATM).
You can select up to 5 expiries to compare the deformation of the smiles across those expiries. The volatility smiles show that ITM and OTM options tend to be more in demand than ATM. Implied volatility is impacted as demand drives prices.