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Spread Trading With Futures Contracts And SeasonexA futures spread is a trade which consist of more than one futures position (usually two opposite positions) in the same or related commodity. Overall, traders use spreads because the margin requirements are lower, they are generally (though not always) safer, and they are watched by fewer traders (which may provide more opportunity, but less liquidity). They are amongst many trader's favorites due to there more obscure or exotic nature. Many also believe that seasonals have been stronger and more persistent in spreads. Seasonex covers two types of spreads: intermarket and interdelivery.Intermarket Spreads An intermarket spread involves two related commodities, like wheat and corn. If a trader thought wheat were overpriced relative to corn, they would short wheat and go long corn (aka short the spread). The Seasonex database calculates these spreads as the first listed commodity minus the last. The same delivery month is always used for both commodities. For example, a March wheat-corn spread would simply be calculated as the closing price of March wheat minus the closing price of March corn. In order to take a long position in a spread (meaning you want the spread to increase), you will need to take a long position in the first commodity (wheat) and a short position in the second (corn). A short position in the spread would simply be the reverse, or short the first (wheat) and long the second (corn). Interdelivery (Intramarket) Spreads An interdelivery spread is also know as an intramarket or calendar spread and involves trading the same commodity but two different delivery months. For example, if a trader though May corn were underpriced relative to July corn, they would go long May corn and short July corn. The Seasonex database calculates these spreads as the first listed delivery month minus the last. For example, a May-July corn spread would simply be calculated as the closing price of May corn minus the closing price of July corn. In order to take a long position in a spread (meaning you want the spread to increase), you will need to take a long position in the first delivery month (May corn) and a short position in the second (July corn). A short position in the spread would simply be the reverse, or short the first (May corn) and long the second (July corn). | ||||
