Why OTM Puts Almost Always Cost More Than OTM Calls
The asymmetry, in one comparison
Pull up almost any equity option chain and pick two strikes the same distance from the stock price — a put 5% below spot and a call 5% above it. Black-Scholes assumes both should price off the same volatility input. They don't. The put almost always carries a noticeably higher implied volatility than the call. This gap is called volatility skew (sometimes "the smirk," to distinguish it from the more symmetric "smile" seen in some FX and index markets), and it's one of the most persistent, well-documented patterns in the options market — visible on SPY, on mega-cap tech, on nearly every liquid single name.
Stocks fall fast and climb slowly
The core reason is a real, observable asymmetry in how stocks move. Equity declines tend to be sharper and more violent than equity advances — a bad earnings print, a guidance cut, or a broad market selloff can take 10% off a stock in a single session, while the equivalent 10% gain typically accrues over weeks or months. Because a crash-style move to the downside is both larger and faster than a comparable move to the upside, the options market prices that risk into the volatility used for downside strikes. Higher assumed volatility for puts is the model's way of saying "the tail on this side is fatter."
The leverage effect: falling prices raise volatility
There's a second, related mechanism sometimes called the leverage effect. As a company's stock price falls, its debt-to-equity ratio rises even if debt is unchanged — the equity slice of the balance sheet just got smaller. A financially "more levered" company is, all else equal, a more volatile stock. So a price decline doesn't just create a bigger move on its own; it structurally increases the volatility of future moves too. That negative correlation between price and volatility is baked into the market's expectations, and it shows up as richer pricing on downside strikes specifically.
Hedging flow reinforces the shape
Supply and demand does the rest. A large share of institutional options activity is portfolio insurance: funds systematically buying downside puts to hedge long equity exposure. That's persistent, price-insensitive demand concentrated on one side of the chain, and it bids up implied volatility on puts. On the call side, a lot of retail and institutional flow runs the other direction — covered call writing against existing stock positions adds supply of OTM calls, which caps how rich call-side IV can get. Puts are chronically bid; calls are chronically offered. The skew is what that ongoing imbalance looks like in price.
Reading skew, and where it isn't a violation of anything
It's worth being clear that skew isn't an arbitrage or a pricing error — Black-Scholes assumes one constant volatility across all strikes, but real markets don't have to respect that assumption, and they don't. Traders instead plot implied volatility against strike (or delta) and read the resulting curve as its own piece of information. A steep, persistent put skew is normal. A skew that steepens sharply in a short window — puts getting bid up relative to calls faster than usual — is often a read on rising fear or hedging demand, independent of whatever at-the-money IV is doing on its own.
This is also why comparing a single option's IV to a flat "the stock's IV is X%" number can be misleading — the honest comparison is strike-by-strike. OptionScope's Fair Value tool compares a specific contract's implied volatility against historical volatility and flags over/underpricing at that exact strike, which is a more useful question than "is IV high" in the abstract. For the underlying mechanics of how IV itself is derived, the implied volatility guide is a good starting point.