Calendar Spreads in Futures. Calendar spreads are complex orders with contract legs—one long, one short—for the same product but different expiration months.
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- Smarter trading in futures spreads
- How Calendar Spreads are Priced
- School of Stocks - Futures Strategies – Part 1
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Smarter trading in futures spreads
If assigned, the investor will sell have called the stock at the strike price. While the long call can be exercised to cover the assignment, that might or might not be the optimal play. It will depend on how much time value is remaining in the long call. Whether trading call or put calendar spreads, the strategy is best suited for investors with previous options trading experience and that understand the risks of the position, including exercise and assignment.
It is very important to know what to do as the first expiration approaches.
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At this time, the investor can either close entirely or, if possibly choose to roll the spread, which means to buy back the nearer term option and sell one in the next expiration. A good place to start when searching for potential calendar plays is in names that are expected to trade in a range.
How Calendar Spreads are Priced
The short options might have 20 to 40 days to expiration and the long options 50 to 90 days. Home Option Education Advanced Articles. Given adequate resources and manageable expectations, calendar spreads are a viable way of engaging the futures markets. Calendar spreads—also called intramarket spreads—are types of trades in which a trader simultaneously buys and sells the same futures contract in different expiration months. Calendar spreads may be executed in a bullish or bearish fashion, depending on the position taken in the near month contract.
This example illustrates how Carey the energy trader could execute a bullish calendar futures spread in West Texas Intermediate WTI crude oil :. By opening concurrent long and short positions in the same market with different contract months, Carey has executed a calendar spread trade.
School of Stocks - Futures Strategies – Part 1
The process may be routinely completed with minimal effort in either a self-directed or broker-assisted capacity. The position is effectively null, given the open long and short positions, right?
Well, not exactly. Carey is in a position to secure a profit with limited risk and minimal capital outlay.
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The paper assumes that there is the overall bullish trend in the gold market for the analyzed period. This may be a consequence of world demand for metals in volatile markets, so this strategy should be used in growing markets. Keywords: commodity futures, trading strategies, calendar spreads, algorithmic trading References: Collins D. Commodity Indexes Getting More Complex. Futures Magazine , , pp. Speculation and Hedging. Food Research Institute Studies , , vol.
Fung W. London, Euromoney Books, , pp. Journal of Alternative Investments ,
