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In some particular Markets for a given expiration, options whose strike price differs substantially from the underlying asset's price command higher prices than what is suggested by standard option pricing models. These options are said to be either deep in-the-money or out-the-money. Graphing implied volatilities against strike prices for a given expiry yields a skewed "smile" instead of the expected flat surface.In fact,Volatility smiles tell us that demand is greater for options that are in-the-money or out-of-the-money.

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