CZ9 /CH10 Spread

L

livingston777

I had an idea today and see that all of the sudden lots of other people are talking about spreads but my question is a little different.

My idea is potentially to short cz9 and go long ch10.

I did calendar spreads with options before but not futures.

Being that the margin requirements are so low for this trade I wonder if it is at all worth trying out. (I usually trade 1 contract at a time but could feel confortable with 5 or more with the margin requirements here...) - Is this just a deep well with a sheet pulled over it or is there potential for conservative gains with limited risk?

Any thoughts on this?
 
Good ?, I am short the sprd right now (+h -Z) My bet is that it gets to 16 or 17 cents. Youngtrader could offer more insight, I believe margin is around 100 or 150 a sprd is that what you are seeing? With the record corn crop coming in, barring frost issues, this could be a pretty low risk short good luck.
 
If I were to enter this I am not sure how...

It tells me that the margin requirements are $47 and that the spread was 13.500 to the buy side (as of the last time I checked)

I don't understand what figure is entered into the limit window... 1 or 13.500 or what.

Is there better advantage to doing this then just shorting Dec? That is what I would normally do but then I heard about spreading....
 
I'm not going to tell you what to do, but I can tell you from my experience that spreading is much easier and less stressful than outright trading. The spread right now is trading -13'4 bid and -13'2 offered. If you are selling it, you would call the order desk or your broker and say that you want to buy march corn and sell dec at 13'2 (quarter) to the buy side since you are buying the march and the premo is on the march side. You would then look for the spread to widen out for it to go in your favor. PM me if you have any spread questions. I trade probably 90-95 percent, let me know if I can be of any help.
 
What variable values are you using to calculate full carry? The one source, as cited on another thread here I believe, publishes full carry for the H0/Z9 spread at 17 cents. The rule of thumb that I have been told is too consider 75% of full carry and not to expect the spread to extend to 100%. I just exited that trade because of the two statements above. Is the full carry calculation wrong?
 
Quote from Mktsurfer:

What variable values are you using to calculate full carry? The one source, as cited on another thread here I believe, publishes full carry for the H0/Z9 spread at 17 cents. The rule of thumb that I have been told is too consider 75% of full carry and not to expect the spread to extend to 100%. I just exited that trade because of the two statements above. Is the full carry calculation wrong?
More...

take a look at some of the wheat spreads...85-95% full carry. It happens.
 
I do realize it can happen. I suppose it comes down to having a strong fundamental perspective to expect the carry spreads to expand towards 100%. Thus, the real question is, since he believes we are in a period in which the carry spreads are going to push close to 100%, why? Is it based on a strong fundamental case ( ending stocks above average), a guess, a gut feeling, etc. I do not care what his opinion is per se, just curious as to how he arrived at that opinion.
 
Quote from Mktsurfer:

I do realize it can happen. I suppose it comes down to having a strong fundamental perspective to expect the carry spreads to expand towards 100%. Thus, the real question is, since he believes we are in a period in which the carry spreads are going to push close to 100%, why? Is it based on a strong fundamental case ( ending stocks above average), a guess, a gut feeling, etc. I do not care what his opinion is per se, just curious as to how he arrived at that opinion.
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I do not have an opinion either way, it is a matter of a new idea to me this afternoon and wanting to get more information before I try something and after these comments I have gone from "I think I know what I am getting into" to "I have no clue what I am doing here".

So, if I do anything now it will be to just short Dec on a little bounce later in the week.

The original thought was "ok I sell a dec and buy a march and then I can sit on it for a while with less risk than my regular x point stop". However this does not appear to be the case because I am hearing terms I have not heard before.

I hope this thread continues for the education part but I will not be spreading futures this week..... :)

PS if the spread is already near 100% how can you tell this?
 
As long as you are analyzing the same crop year the formula is (interest rate/12 * price per bushel + storage/insurance per bushel) * number of months between spread. I have contacted my broker's back office to obtain the current storage costs, though they seem high compared to what I have backed into from other published full carry figures. There are only a handful of books available on commodity spreads, the one I have is by Courtney Smith - Futures Spread Trading. If you are new to the markets, take the advice that I ignored many, many years ago and learn commodity spreads. In some ways it is easier than outright trading, especially if you are starting with a small account balance.
 
Quote from Mktsurfer:

As long as you are analyzing the same crop year the formula is (interest rate/12 * price per bushel + storage/insurance per bushel) * number of months between spread. I have contacted my broker's back office to obtain the current storage costs, though they seem high compared to what I have backed into from other published full carry figures. There are only a handful of books available on commodity spreads, the one I have is by Courtney Smith - Futures Spread Trading. If you are new to the markets, take the advice that I ignored many, many years ago and learn commodity spreads. In some ways it is easier than outright trading, especially if you are starting with a small account balance.
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I wouldn't say I am new to the markets but this question may prove otherwise.

When I attempted to preview my trade idea I was told the margin was $42.70 - To me that sounds like an almost no risk trade and I would think that there would be litle room for profit.
(thus my posting was born)

Another thing to mention is that I was using the actual contracts and not the options. - Was that totally wrong?

This is why I didn't do it in the first place, the margin seemed completely off... when I buy or sell a contract the margin is whatever the specs are, several hundred each. $42.70 per contract seems like a dream that could turn into a nightmare due to lack of understanding.

I don't grasp how if the spread between two months is X we can say it can't get anymore, or it's almost at 100%. But I also don't understand why the margin can be so low, when in theory if it were 13, then it could potentially narrow to 0 and then I would loose the entire thing, so a margin of less than $100 bucks sounds messed up.

I will check out that book. Thanks :)
 
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