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+840 Part VI: Measuring and Trading Volatility 
+The causes of this effect stem from the stock market's penchant to crash occa­
+sionally. Investors who want protection buy index puts; they don't sell index futures 
+as much as they used to because of the failure of the portfolio insurance strategy dur­
+ing the 1987 crash. In addition, margin requirements for selling naked index puts 
+have increased, especially for market-makers, who are the main suppliers of naked 
+puts. Consequently, demand for index puts is high and supply is low. Therefore, out­
+of-the-money index puts are overly expensive. 
+This does not entirely explain why index calls are so cheap. Part of the reason 
+for that is that institutional traders can help finance the cost of those expensive index 
+puts by selling some out-of-the-money index calls. Such sales would essentially be 
+covered calls if the institution owned stocks, which it most certainly would. This strat­
+egy is called a collar. 
+This distortion in volatilities is not in accordance with the probability distribu­
+tion of stock prices. These distorted implied volatilities define a different probability 
+curve for stock movement. They seem to say that there is more chance of the market 
+dropping than there is of it rising. This is not true; in fact, just the opposite is true. 
+Refer to the reasons for using lognormal distribution to define stock price move­
+ments. Consequently, there are opportunities to profit from volatility skewing, if one 
+is able to hold the position until expiration. 
+It was shown in previous examples that one would attempt to sell the options 
+with higher implied volatilities and buy ones with lower implieds as a hedge. Hence, 
+for OEX traders, three strategies seem relevant: 
+1. Buy a bear put spread in OEX. 
+Example: Buy 10 OEX June 560 puts 
+Sell IO OEX June 540 puts 
+2. Buy OEX puts and sell a larger number of out-of-the-money puts - a ratio write 
+of put options. 
+Example: Buy 10 OEX June 560 puts 
+Sell 20 OEX June 550 puts 
+3. Sell OEX calls and buy a larger number of out-of-the-money calls - a backspread 
+of call options. 
+Example: Buy 20 OEX June 590 calls 
+Sell IO OEX June 580 calls 
+In all three cases, one is selling the higher implied volatility and buying options 
+with lower implied volatilities. The first strategy is a simple bear spread. While it will