Chapter 39: Volatility Trading Techniques 843 
futures option markets. In particular, gold, silver, sugar, soybeans, and coffee options 
will from time to time display a form of volatility skewing that is the opposite of that 
displayed by index options. In these futures markets, the cheapest options are out-of­
the-money puts, while the most expensive options are out-of-the-money calls. 
Example: January soybeans are trading at 580 ($5.80 per bushel). The following 
table of implied volatilities shows how volatility skewing that is present in the soybean 
market is the opposite of that shown by the OEX market in the previous examples: 
January beans: 580 
Strike Implied Volatility 
525 12% 
550 13% 
575 15% 
600 17% 
625 19% 
650 21% 
675 23% 
Notice that the out-of-the-money calls are now the more expensive items, while 
out-of-the-money puts are the cheapest. This pattern of implied volatilities is called 
forward volatility skew or, alternatively, positive volatility skew. 
The distribution of soybean prices implied by these volatilities is just as incor­
rect as the OEX one was for the stock market. This soybean implied distribution is 
too bullish. It implies that there is a much larger probability of the soybean market 
rising 100 points than there is of it falling 50 points. That is incorrect, considering the 
historical price movement of soybeans. 
A strategist attempting to benefit from the forward ( or positive) volatility skew 
in this market has essentially three strategies available. They are the opposite of the 
three recommended for the $OEX, which had a reverse (or negative) volatility skew. 
First would be a call bull spread, second would be a put backspread, and third would 
be a call ratio spread. In all three cases, one would be buying options at the lower 
striking price and selling options at the higher striking price. This would give him the 
theoretical advantage. 
The same sorts of comments that were made about the OEX strategies can be 
applied here. The bull spread is a directional strategy and can probably only be 
expected to make money if the underlying rises in price, despite the statistical advan-