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Spread Trading
- Thread starter bathrobe
- Start date
I'm talking about futures spreads, not options spreads.Quote from scaban:
The house is everyone who isnt you. The opposite end, the broker, slippage, market makers, interest rates, etc.
Spread trading is problematic if the comissions are high, as most spreads require dozens of contracts to be profitable. I think you need a deeper understanding of pricing in options to be profitable in spreads. Hell even naked options.
Quote from bathrobe:
As I am always trying to expand my trading opportunities and do not want to ever stop learning I have come to spread trading which I know little about. Buy front month, sell latter month? Using a contract with hypothetical analysis why would one wheat contract rise and the next month fall at the same time?
Any help is appreciated
Generally all the months of a particular contract move in the same direction,the art of spreading is to predict which month will out-pace the other based on more of a long-term view.
Don't trade wheat spreads so not in a position to pass comment but if you look at Eurodollar futures I can give a better example:
You think rates will be cut - you should sell spreads,sell the front month and buy further down the curve(obviously on a 1:1 ratio).If you are right the month that you bought will go up further than the month you sold and you will make a tidy profit from your spreads.
A surprisingly well-timed example:
Fed cuts discount-rate by a quarter-point,as I type this - Eurodollar March 08 +7 ticks,Eurodollar Sep 08 +14 ticks - being short spreads i.e. selling March against buying Sep before this news turns a spread position into a nice profit - now to figure out where we go from here?
Fed cuts discount-rate by a quarter-point,as I type this - Eurodollar March 08 +7 ticks,Eurodollar Sep 08 +14 ticks - being short spreads i.e. selling March against buying Sep before this news turns a spread position into a nice profit - now to figure out where we go from here?
Quote from bathrobe:
As I am always trying to expand my trading opportunities and do not want to ever stop learning I have come to spread trading which I know little about. Buy front month, sell latter month? Using a contract with hypothetical analysis why would one wheat contract rise and the next month fall at the same time?
Any help is appreciated
Both will generally move in the same way, the trick is to find which will outperform the other and make sure the cost of ownership doesn't kill you.