Add training workflow, datasets, and runbook
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Chapter 35: Futures Option Strategies for Futures Spreads 699
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Notice that the same profit would have been made at any of the following pairs
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of prices, because the price differential between July and September is 20 cents in
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all cases (with July being the more expensive of the two).
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July Futures September Futures July Profit September Profit
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420 400 -180 +206
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470 450 -130 +156
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550 530 -50 +76
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600 580 0 +26
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650 630 +50 -24
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700 680 +100 -74
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800 780 +200 -174
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Therefore, the same 26-cent profit can be made whether soybeans are in a
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severe bear market, in a rousing bull market, or even somewhat unchanged. The
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spreader is only concerned with whether the spread widens from a 6-cent differen
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tial or not.
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Charts, some going back years, are kept of the various relationships between
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one expiration month and another. Spread traders often use these historical charts to
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determine when to enter and exit intramarket spreads. These charts display the sea
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sonal tendencies that make the relationships between various contracts widen or
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shrink. Analysis of the fundamentals that cause the seasonal tendencies could also be
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motivation for establishing intramarket spreads.
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The margin required for intramarket spread trading (and some other types of
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futures spreads) is smaller than that required for speculative trading in the futures
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themselves. The reason for this is that spreads are considered less risky than outright
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positions in the futures. However, one can still make or lose a good deal of money in
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a spread - percentage-wise as well as in dollars - so it cannot be considered conser
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vative; it's just less risky than outright futures speculation.
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Example: Using the soybean spread from the example above, assume the speculative
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initial margin requirement is $1,700. Then, the spread margin requirement might be
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$500. That is considerably less than one would have to put up as initial margin if each
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side of the spread had to be margined separately, a situation that would require
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$3,400.
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In the previous example, it was shown that the soybean spread had the poten
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tial to widen as much as 100 points ($1.00), a move that would be worth $5,000 if it
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