Derivatives
Volatility Smile
Definition
What is Volatility Smile?
A pattern in which implied volatility differs across option strike prices.
Example in practice
How This Looks in Practice
Deep in- and out-of-the-money options trade at higher implied volatility than at-the-money options.
Keep learning
Related Terms
Derivatives
Derivative
A contract whose value depends on an underlying asset, rate, index, or event.
DerivativesUnderlying Asset
The asset, rate, index, or reference on which a derivative's value is based.
DerivativesNotional Amount
The reference amount used to calculate derivative payments, which may exceed the cash initially exchanged.
Derivatives StrategiesCovered Call
A strategy that owns the underlying asset and sells call options against it.