When we talk about skew, we are talking about the difference in implied volatility (IV) between contracts. Implied volatility represents what real people/market makers feel that the future volatility will be. The volatility going forward.

So if for example a JUL Call has a IV of 18% and the AUG call has an IV of 30%, people are voting with their money that something will happen , such as an earnings call, between JUL and AUG.

The skew is the difference between the two. We calculate skew by subtracting the next expirations volatility from the next month out.

A slight positive skew is normal, while a negative skew represents that traders think something will happen in the near term. In the example, that would be a positive skew of 12% ( 30% - 18% )

Remember, “Greater the skew, greater the move”