In 1917, Jean Cocteau arranged the first of several commissions
for Picasso to design the sets for Diaghilev’s Ballet Russe
in Rome, and Picasso followed him there for a couple of months.
This was Picasso’s first trip to Italy and his first real
exposure to Greco-Roman antiquity. His sojourn in Italy was to
have far-reaching consequences for his art. While
all along adding to his vast panoply of synthetic cubist iterations,
Picasso at the same time set out to capture Classicism and make
it his
own, and he did so, typically, in more ways than one. At one extreme,
he created rather naturalistic renditions of Diaghilev, Stravinsky,
and some of the dancers including Massine and his future wife,
Olga. At the opposite extreme, he developed a novel idiom for creating
sculpture without having to resort to hammer and stone--sculptural
painting. He had already created one general style of sculptural
painting, epitomized by Les Demoiselles d’Avignon,
where the figures as well as the space surrounding them seem hewn
out of rock.
Now he created a new cast of characters, classical in their features
right up until the moment he inflated their bodies to the bursting
point like a turgid balloon.
The drawing at hand marks the halfway point between
the more realistic portrait drawings that preceded it and to which
Picasso
soon returned,
and the sculptural paintings of the period, with one of which this
drawing is closely related. That painting, which bears
the same name as this drawing, Femme Assise,
now hangs
in the
Musée Picasso
(Paris) and is shown below:

According to John Richardson (Picasso: The Classical
Period, New York, 2003, p. 15), these works were inspired
by the the
famous fresco, The
Recognition of Telephus by Hercules, which Picasso would
have seen while sojourning in Italy in the Museo Naxionale of
Herculaneum. Both painting and drawing show the same
apposition of hand to face, finger to mouth's edge, as in the
depiction of the central figure of this
fresco. This
drawing in particular, as well as one other closely related drawing,
reveal
Picasso's take on the dreamy, lost-in-thought expression of this
lady in plaster.
Of course, that's where all resemblance ceases. The rest
of these neoclassical compositions is purely Picasso's invention. Richardson
typically has a quite a number of fascinating insights to contribute
to the art history of these works, including the following observations:
"Olga's pregnant belly is sometimes said to
have inspired the pneumatic look of the countless paintings that
derive from the Two Nudes [1920]. In fact, he seldom if ever inflates
the bellies of his Classical women. He inflates only their extremities—hands
and feet, toes and fingers—and their faces: lips, noses,
cheeks, eyelids. Picasso had recourse to the same devices he had
discerned in the Farnese marbles: for instance, how the disproportionate
widening of the bridge of a nose or the bananification of fingers
enabled the sculptors of antiquity to monumentalize their figures.
By using these devices against themselves to parodic effect, Picasso
subverted the sacrosanct canons of classical beauty, especially
those relating to proportion, just as, then years earlier, he and
Braque had succeeded in subverting Renaissance laws of perspective
by using them, too, against themselves.”
This seated woman provides an interesting insight
into the workings of Picasso’s mind, or, more specifically,
the flow of his creative juices, especially when regarding the
tentative, initially more proportional rendition of the left hand,
prior to its assumption of its final, gargantuan state. This
progression presumably reflects Picasso's realization
that only comically swollen hands
could suit
his present purposes.
The right foot in this composition is by contrast disproportionally small and unfinished, which appearance may be elucidated by the following explanation. Shortly before Picasso created this drawing, Olga had broken her leg, an injury, as has been surmised, which ended her ballet career. This injury probably explains the hatch marks across the right foot, and its foreshortening as also seen in two other related drawings created that month, clues, typically veiled as was his wont, to a true life-event.
The full-blown expression of Picasso’s two-dimensional "sculptures" were
for the most part saved for the more plentiful paintings of this style. He must have felt that painting was
better suited for his colossal creations, whereas he clearly preferred a more
delicate touch for this conté crayon drawing and the one directly related
charcoal, as well as for several other stylistically, if not thematically, related
works on paper of the period. This breathtakingly tender, poignant, revolutionary, yet amusing
drawing has achieved immortality with a place of honor in Picasso's pantheon.
It’s not just I who is wild about this drawing. Ever since we acquired it, employees of the two major auction houses on both sides of the Pond have been courting me with the offer of putting it on the front or back cover of their catalogues. And my friend, the artist and trusted art dealer Ann Chernow, believes it to be the best Picasso to have changed hands in years. Period. This is clearly a superlative drawing, but you may be wondering just how superlative. Having scoured the catalogues raisonnés of the years in which Picasso did her portrait (essentially 1917-1924), I have concluded that it is the very best drawing of Olga, bar none. There is one beautiful drawing of a mother and child that I consider as great, Mère et Enfant (1922, PP22-123, Z.XXX, 360):

They are not exactly portraits of Olga and the baby Paulo but perhaps neoclassical stand-ins for them. Furthermore, this more realistic drawing is not as interesting or Picasso-esque, and it suffers in comparison by lacking the humorous acromegalic distortions characteristic of the full-blown sculptural neoclassical phase of which the present drawing is an exemplar.
There is certainly nothing in the auction record that compares to the drawing at hand. The best work on paper of Olga to have been auctioned in recent years is the following:

This “pretty” picture, Portrait d’Olga (1920, pencil on paper),
is admittedly larger than the work at hand but quite flat and uninteresting by comparison. Nonetheless, it fared predictably well, fetching $2,592,000 in November, 2006.
Finally, a brief word about the medium of our drawing. Picasso rarely used conté crayon, which is one more reason why this drawing is exceptional. Picasso’s line fairly glistens from its waxy pigment, rendering this portrait all the more striking.