Chapter 35: Futures Option Strategies for Futures Spreads 709 
the profit or loss that would be made by an intramarket soybean spreader who bought 
May and sold March at the initial prices of 598 and 594, respectively. The calendar 
spread generally outperforms the intramarket spread for the prices shown in this 
example. This is where the true theoretical advantage of the calendar spread comes 
in. So, if one is thinking of establishing an intrarnarket spread, he should check out 
the calendar spread in the futures options first. If the options have a theoretical pric­
ing advantage, the calendar spread may clearly outperform the standard intramarket 
spread. 
Study Table 35-4 for a moment. Note that the intramarket spread is only better 
when prices drop but the spread widens (lower left comer of table). In all other 
cases, the calendar spread strategy is better. One could not always expect this to be 
true, of course; the results in the example are partly due to the fact that the March 
options that were sold were relatively expensive when compared with the May 
options that were bought. 
In summary, the futures option calendar spread is more complicated when 
compared to the simpler stock or index option calendar spread. As a result, calendar 
spreading with futures options is a less popular strategy than its stock option coun­
terpart. However, this does not mean that the strategist should overlook this strate­
gy. As the strategist knows, he can often find the best opportunities in seemingly 
complex situations, because there may be pricing inefficiencies present. This strate­
gy's main application may be for the intramarket spreader who also understands the 
usage of options. 
LONG COMBINATIONS 
Another attractive use of options is as a substitute for two instruments that are being 
traded one against the other. Since intermarket and intramarket futures spreads 
involve two instruments being traded against each other, futures options may be able 
to work well in these types of spreads. You may recall that a similar idea was pre­
sented with respect to pairs trading, as well as certain risk arbitrage strategies and 
index futures spreading. 
In any type of futures spread, one might be able to substitute options for the 
actual futures. He might buy calls for the long side of the spread instead of actually 
buying futures. Likewise, he could sell calls or buy puts instead of selling futures for 
the other side of the spread. In using options, however, he wants to avoid two prob­
lems. First, he does not want to increase his risk. Second, he does not want to pay a 
lot of time value premium that could waste away, costing him the profits from his 
spread.