Spread Trading

Quote from wavetrader:

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Markus,
You mentioned the Soybean Intramarket or Calendar spread.

How do you know which months to pick in this type of spread? Do you go by volume in the contract months, or is there a guideline using seasonality and other factors?
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wavetrader,

Usually I want to see a daily volume of 1,000 or more contracts in each underlying futures contract. Let's take an example from Thursday, May 1. I took the volume information from the CBOT website (see attached picture).

Though September Soybeans have a volume of 1,413 contracts, I would not trade them. In comparison to 55,409 contracts in the frontmonths they appear too illiquid for me.

So there are just 3 months left:
- SN3 (July Soybeans)
- SQ3 (August Soybeans) and
- SX3 (November Soybeans).

Now you can start charting the spreads:
1.) SN3-SQ3
2.) SN3-SX3 and
3.) SQ3-SX3

Actually I would not enter any of these spreads, but I hope that this example answers your question. I apply the same principle to all other markets I am watching (e.g. meats, grains, financials, ...).

When I see a nice chart formation on these spreads, I check the seasonality. If I get a confirming signal: great. But for me it's not a must. I just want to be sure that I am not entering a spread against its seasonality, if there is any.

Does that make sense to you?

Markus
 

Attachments

Hi Wavetrader,

I looked at the NOB spread today after the close and it looks like a potential opportunity to sell the the NOB on 5/6/03 if it trades below -35.00 I have attached a chart for your review.
 

Attachments

Here is another interesting spread chart. It demonstrates the concept of entering a spread at a support level that has held in the past. This will be the second time this spread has traded down to this level. Will it hold, time will tell.

Backw.
 

Attachments

Beans's bottom is not due for a few Moore days.
0313-2d.gif
 
Quote from Backwardation:

Here is another interesting spread chart. It demonstrates the concept of entering a spread at a support level that has held in the past. This will be the second time this spread has traded down to this level. Will it hold, time will tell.

Backw.
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Backwardation, GoldTrader,

just for fun: I am holding the other side of the bet :)

I will enter SX3-SN3 if it closes above -69.0 tomorrow (05/07/03).

Markus
 
Backwardation, GoldTrader,

just for fun: I am holding the other side of the bet

I will enter SX3-SN3 if it closes above -69.0 tomorrow (05/07/03).

Markus
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Markus,

If it breaks above -69.00 I am with you.

Backw.
 
Quote from Backwardation:

Here is another interesting spread chart. It demonstrates the concept of entering a spread at a support level that has held in the past. This will be the second time this spread has traded down to this level. Will it hold, time will tell.

Backw.
More...
Backwardation,

good choice! :)

Did you take the spread?

The support level was at 69.25. The spread closed at 76.5 today (see attached picture). That's a nice profit of $362.50 in just 4 days.

The margin for the spread is $473, i.e. you would have made 76% based on your margin. Very nice :)

I must admit that I did not trade it, because I prefer trading in trending markets.

Have a great weekend,

Markus
 

Attachments

Hi Markus,

In all honesty I missed this entry, but I would have entered at around 72.00. When I look at this type of trade. I like to see it bounce off support before I enter and based on Friday's price action you could have of covered your costs in the trade and made some profit with part of the position still working. That's what I consider to be some good trading. :)

regards,
Backwardation
 
Quote from Backwardation:

Here is another interesting spread chart. It demonstrates the concept of entering a spread at a support level that has held in the past. This will be the second time this spread has traded down to this level. Will it hold, time will tell.

Backw.
More...
I would not want to pick which way it goes. Therefore, why not just buy the straddle, or a ratio strangle with the more aggressive side whatever you think is more likely? I agree it is less profitable, but it takes a far more defensive stance.

nitro
 
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