Forward Skew

Forward skew describes an implied volatility surface where out-of-the-money call options carry higher implied volatility than out-of-the-money put options at the same expiry — the opposite of the more common reverse skew (or put skew) observed in equity markets. Forward skew is most commonly seen in commodity options markets — particularly for crude oil, natural gas, and agricultural commodities — where the market prices in a higher probability of large upward price spikes (supply disruptions, geopolitical events) relative to downward moves. In Indian commodity options on MCX, crude oil options frequently exhibit forward skew during periods of Middle East geopolitical tensions or OPEC production cut decisions that threaten supply. Forward skew is also occasionally observed in individual equity options in India during merger and acquisition situations, regulatory changes, or pre-result periods where a large positive surprise is considered more likely than a negative one. Understanding forward skew is essential for correctly pricing and hedging commodity derivatives positions.