Financial options are influenced by many factors, among others implied volatility. Implied volatility expresses the level of uncertainty that the market participants attribute to a risky underlying asset for a given maturity in the future. A higher uncertainty will result in a higher volatility, which in turn will increase the price of the options. The reverse is true for less uncertainty. An observable fact in the market is that options on an identical asset for a given maturity have different volatilities. This phenomenon is called the smile or the skew.
