# Skew as a Key Indicator in Predicting Bull Markets

There are many ways to predict a bull market, but the ‘skew’ indicator from the options market is among the quickest and sharpest tools. The 25-delta skew provided by Deribit quantifies market participants’ directional sentiment, offering key insights at inflection points where bullish and bearish trends intersect.

# What is Skew?

In the options market, ‘skew’ is an indicator that represents the difference in implied volatility (IV) between call and put options with the same expiration. It is typically compared at the 25-delta level, indicating which direction the market is paying a higher premium for. Simply put, skew is a structural indicator that quantifies the psychological asymmetry and risk preference of market participants. Utilizing skew can equip investors with a more agile response to market changes.

# How Skew Works

Skew is generally calculated as put option IV minus call option IV. If the skew is positive, it indicates that puts are more expensive, reflecting a sentiment of downside risk. Conversely, if the skew is negative, it means calls are pricier, suggesting a bullish sentiment. Since skew shows the slope of the underlying volatility structure rather than just price, it is effective for reading trend changes and position imbalances.

# Different Interpretations of Skew

The term ‘skew’ can be calculated differently depending on the exchange or market. Deribit provides the IV difference between put and call options at the 25-delta level. On the other hand, the CBOE Skew Index reflects pricing for extreme downside possibilities, while some markets qualitatively refer to the asymmetry of the IV curve as ‘skew.’ Therefore, it is essential to understand the calculation method and unit criteria before interpreting skew.

# Deribit Skew: A Key Indicator in Cryptocurrency Markets

Deribit is a crucial platform in the global cryptocurrency options market. The 25-delta skew for Bitcoin and Ethereum precisely captures market sentiment and is widely used. This indicator reflects both short-term trading demand and institutional position directions, allowing real-time detection of sentiment shifts, such as increased upside expectations or expanded downside hedging. Essentially, Deribit skew acts as a ‘fear and greed index’ for the cryptocurrency options market.

# Why Negative Skew Indicates Bullish Betting

On Deribit’s model, skew is calculated as put IV minus call IV. Thus, a negative skew means the IV for calls is higher, indicating a market betting on upward movement due to higher demand for call options. Recently, a Deribit chart showed the short-term skew plummet from +30 to below -10, illustrating a surge in call demand and intensified bullish betting. The transition of skew from positive to negative might seem unusual if one traditionally expects puts to be more expensive, but interpretation should always adhere to the established definition.

# Real-World Examples

In February 2025, on a day when the S&P 500 index plummeted, the short-term skew for Bitcoin flipped from +30 to below -10 within a day, marking a clear bullish bet dominated by call options. During this period, the Deribit options market reflected immediate short-covering and heightened upside expectations, with prices rebounding over 5%. This case shows how a negative skew wasn’t just a number but correlated with a genuine bullish sentiment.

# Importance of Checking Volatility Indicators

Skew shows the premium difference directed towards either bullish or bearish sentiment but not the overall volatility level of the market. Therefore, understanding absolute volatility requires checking the IV of each option separately. For instance, a negative skew with low overall IV might indicate a listless market, whereas a high IV paired with a negative skew could signal robust bullish betting reflected in actual volatility.

In November 2024, a massive call-option sell-off on Deribit sharply lowered the IV for the corresponding expiration, temporarily distorting the skew. While this might have appeared as a decrease in bullish sentiment from the skew alone, it was, in fact, a technical fluctuation due to position liquidation. Cases like this highlight the necessity of analyzing supportive indicators like IV and open interest to avoid misinterpretation.

# Tips and Precautions for Using Skew

Skew is a powerful sentiment indicator, but interpreting it alone can lead to misunderstandings. It’s crucial to cross-check with IV trends, option trading volumes, and changes in open interest. Additionally, notable market events, such as CPI releases or ETF approvals, can temporarily distort skew, necessitating a combined analysis of trend persistence.

By following these guidelines, investors can better utilize skew as a sophisticated tool for navigating the financial markets, rendering it indispensable for both short-term trading and long-term investing strategies.