Chapter 35: Futures Option Strategies for Futures Spreads 
TABLE 35-2. 
Terms of oil production contract. 
Contract 
Crude Oil 
Unleaded Gasoline 
Heating Oil 
Initial 
Price 
18.00 
.6000 
.5500 
Subsequent 
Price 
19.00 
.6100 
.5600 
The following formula is generally used for the oil crack spread: 
Crack= (Unleaded gasoline + Heating oil) x 42 - 2 x Crude 
2 
(.6000 + .5500) X 42 - 2 X 18.00 = 
2 
= (48.3 - 36)/2 
= 6.15 
703 
Gain in 
Dollars 
$1,000 
$ 420 
$ 420 
Some traders don't use the divisor of 2 and, therefore, would arrive at a value 
of 12.30 with the above data. 
In either case, the spreader can track the history of this spread and will attempt 
to buy oil and sell the other two, or vice versa, in order to attempt to make an over­
all profit as the three products move. Suppose a spreader felt that the products were 
too expensive with respect to crude oil prices. He would then implement the spread 
in the following manner: 
Buy 2 March crude oil futures @ 18.00 
Sell 1 March heating oil future @ 0.5500 
Sell l March unleaded gasoline future @ 0.6000 
Thus, the crack spread was at 6.15 when he entered the position. Suppose that 
he was right, and the futures prices subsequently changed to the following: 
March crude oil futures: 18.50 
March unleaded gas futures: .6075 
March heating oil futures: .5575 
The profit is shown in Table 35-3.