CME - Why Smart Money Trades Spreads

bone

bone

Good primer from the CME on spread trading futures. footnote: I am personally not a big fan of spreading WTI versus Brent - the positive correlation has come way off the past several years and the cointegration tendencies have gone up (not good). But for the most part these are good, solid introductory concepts.

The intra market complex spreads [for example, CL Dec 20-Mar21-Jun21, 1-2-1 Butterfly] {NG Jan21-Feb21-Mar21-Apr21 Condor} are the types of trade constructs where my own clients spend most of their time.

I have found that the CME Education Section has some of the best publicly available materials I have personally seen on spread trading. And it's free.

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-i.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-ii.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-iii.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-iv.html
 
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Thanks for the links. It is something I have been saying to long that I should learn more about. The daytrade side of the business is burning me out and usually I am just sitting after the 1st 2 hours of the day, so it would be good to spend time learning. Actually have thought about finding work away from trading the last couple years, but maybe this can be an alternative.
 
Spread trading is fun. It's important to note I've found generally that trading further back month spreads is more profitable. The only reason I survived the oil plunge was I was way out on the curve.

I focus mainly on seasonality. It's been fairly profitable to me, and after losing a chunk of my account to the oil dips (I still lost I just didn't get destroyed) I am slowly but surely pulling myself out of the hole again. I probably won't trade oil again for a while though. The trick really is to have good data and historical research. Without it, spread trading is basically just margin reducing an outright position. I generally sit on my position for months (currently I'm in a natural gas spread that I'll take off some time in late July). It's not really for the spastic daytrader.
 
spread traders provide the liquidity to speculators. and act as market makers
for small size accounts, spread trading the reward is too low for the time and work doing the trade.
your account size or capital needs to be large to make it worth the capital as returns are lower if you spread trade. that is why some traders don't bother with spread trading.

Also some contracts are too illiquid to trade especially the options in futures
there is no bid or ask in the options.
 
bone said:
The inter market complex spreads [for example, CL Dec 20-Mar21-Jun21, 1-2-1 Butterfly] {NG Jan21-Feb21-Mar21-Apr21 Condor} are the types of trade constructs where my own clients spend most of their time.
More...

Those would be intra-market spreads.
 
bone said:
Good primer from the CME on spread trading futures. footnote: I am personally not a big fan of spreading WTI versus Brent - the positive correlation has come way off the past several years and the cointegration tendencies have gone up (not good). But for the most part these are good, solid introductory concepts.

The intra market complex spreads [for example, CL Dec 20-Mar21-Jun21, 1-2-1 Butterfly] {NG Jan21-Feb21-Mar21-Apr21 Condor} are the types of trade constructs where my own clients spend most of their time.

I have found that the CME Education Section has some of the best publicly available materials I have personally seen on spread trading. And it's free.

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-i.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-ii.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-iii.html

https://www.cmegroup.com/education/articles-and-reports/why-smart-money-trades-spreads-part-iv.html
More...


unless your caught long may crude and short something else you would've gave back shit load of your profits
 
There was a very sustained {huge} Contango move in the CL forward curve for several weeks before the May expiry. Point being - you would have been crushed long before April 21st if you were long May or the prompt month against anything.

systematictrader said:
unless your caught long may crude and short something else you would've gave back shit load of your profits
More...
 
bone said:
There was a very sustained {huge} Contango move in the CL forward curve for several weeks before the May expiry. Point being - you would have been crushed long before April 21st if you were long May or the prompt month against anything.
More...



Correct me if i am wrong it appears that going long current contract and short later contracts is virtually bullish AFTER prices have DROPPER, and vice versa

when crude is at 70 appeared to be in a backwardation and that increases if prices rise

and when crude is in 20s or 30s its on contango
 
i have been a happy calendar spread trader for 8 years now. you can build a decent portfolio of futures positions easily even with small account due to generous margin on inter-delivery spreads so in good times account equity can skyrocket easily but overall its slow. it happens few times a year so you have to have everything well done and be around and prepared to exploit those opportunity windows

what i found great about spreads compared to naked futs is spreads trade in channels very often which helps really... there are some very nice S/R levels in many spreads that can be used year after year

but i see most people (newbies) just want to daytrade, they dont care about some slow position shit which is a precisely polished diamond actually :-)
 
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