What are Ag Options Traders ‘Smiling’ About?

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Our recent article on options on agricultural products marveled at the relatively low prices of at-the-money (ATM) options, especially in the face of a gathering La Niña, albeit a relatively mild one so far. As interesting as ATM options are, out-of-the-money (OTM) puts and calls are also telling their own story, arguably an even more perplexing one.

If you ask options traders, the risk for corn, wheat, soybeans and soy meal is strongly skewed to the upside.  For each of these commodities, options traders require a much higher premium on OTM calls (with strikes above the current price) than OTM puts (with strikes below the current price) (Figures 1 to 4). This suggests a greater fear for prices to move up than down.

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