Selling Calls vs Selling Puts: Volatility Skew

Pull up the chain on a stock you would happily own and compare the 30-delta put and 30-delta call at the same expiration. The put almost always pays more. Newer traders assume the chain is wrong, or that something is special about that stock. Neither is true. This is volatility skew, and it is the single most important pricing fact for retail options income.

The short answer#

Equity puts trade at a higher implied volatility than equity calls at the same distance from the money. Higher IV means richer premium. So at equivalent delta, selling a put pays more than selling a call on most US stocks, most of the time. The asymmetry is largest on broad-market ETFs and large-cap names, and smallest on individual high-flying growth stocks. The reason is structural — and it changes which leg of the wheel earns the most.

What volatility skew is#

If you plot implied volatility on the vertical axis and strike price on the horizontal axis for a single expiration, equity options do not sit on a flat line. The shape is roughly a smirk: low-strike puts at high IV, at-the-money options at moderate IV, and high-strike calls at lower IV. The chain is telling you that the market expects downside moves bigger than upside moves on equities, and prices the downside-protection options accordingly.

The shape was not always this severe. Before 1987 the equity skew was nearly flat. After Black Monday and a few subsequent crashes, traders and dealers permanently re-priced crash risk into puts. Skew has been embedded in equity option pricing ever since — flatter in calm markets, steeper in nervous ones, never gone.

A side-by-side example#

Take a hypothetical stock at $230, 30 days to expiration. Suppose the at-the-money IV is 24%. With pronounced skew, the 30-delta put might sit at 28% IV while the 30-delta call sits at 22%. Plug those into a basic Black-Scholes model and the put comes out near $4.20 per share, the call near $3.40. Same delta, same distance from the money, almost a 25% premium gap on the same chain at the same moment.

That is not a mispricing. The market is charging more for downside protection because dealers, market-makers and pension funds have a consistent bid for puts that calls do not get. Retail option sellers are on the receiving end of that bid.

Why does volatility skew widen and shrink?#

Skew is usually steepest when the market is calm and people are paying for tail protection. With VIX low but a crash still imaginable, put IV stays elevated relative to call IV. Counterintuitively, skew often flattens during the actual crash, because by then the at-the-money IV has caught up and the whole chain reprices.

Individual stocks behave differently. On a growth name that traders think could double or halve any quarter, the call side gets richer because upside is genuinely uncertain too. On a sleepy dividend payer that drifts, the put side dominates because nobody pays for upside calls. The same general rule produces a different gap on every ticker.

What does skew mean for the wheel?#

The wheel sells a put, gets assigned, sells calls on the shares, gets called away, then repeats. If put premiums are systematically richer than call premiums at the same delta, the put leg of the wheel earns more per cycle than the call leg. That is the wheel’s hidden engine, and the reason it works at all.

People who think the calls are the “easy” leg of the wheel often find realized income is lower than the spreadsheet promised — they were collecting the cheaper side of the skew. When you have a choice (hold cash and sell a put, or own shares and sell a call) the put usually pays more for the same effective position. The cash-secured put is the wheel’s better-paying leg.

What does skew mean for covered calls?#

If you already hold the stock, you do not get to choose. The covered call is your income tool. Knowing skew exists tells you something useful, though: do not expect call premiums to look like put premiums on the same name. If the 30-delta call yields 4% annualized on a stock where the 30-delta put would yield 6%, that 4% is fine. It is the math of skew, not an underpriced chain.

When the rule breaks#

A few cases where calls can outpay puts on equities:

• Heavily shorted stocks. Borrow rates leak into the call side. When shorting the stock is expensive, calls trade like proxies for short stock and get bid up.
• Pre-buyout takeover names. If the market expects a cash bid at a premium, upside calls catch the bid and the skew temporarily inverts.
• Single-name biotech and binary-event stocks. A trial result can multiply or halve the share price. Both sides of the chain price the binary, and the call side can be the richer one.

None of these are the standard income setup. For the large-cap “I would be happy to own this at a discount” stocks the wheel runs on, skew is in your favor on the put side.

How do you read skew on your own chain?#

Compare the IV of the 25-delta put and the 25-delta call on the same expiration. If the put IV is two to three percentage points higher (or more), you have meaningful skew. Most options platforms show IV per strike directly in the chain. The bigger that gap, the more the wheel’s put leg is doing the heavy lifting.

Use the calculators#

Plug the actual premiums you see into the Cash-Secured Put Calculator and the Covered Call Calculator for the same stock and you will see the asymmetry in the headline returns. Run a full loop with the Wheel Strategy Calculator and you can watch how a skew-rich put leg combines with a skew-poor call leg over multiple cycles.