700 Part V: Index Options and Futures 
occurred. While it is unlikely that the spread would actually widen to historic highs, 
it is certainly possible that it could widen 25 or 30 cents, a profit of $1,250 to $1,500. 
That is certainly high leverage on a $500 investment over a short time period, 
so one must classify spreading as a risk strategy. 
INTERMARKET FUTURES SPREADS 
Another type of futures spread is one in which one buys futures contracts in one mar­
ket and sells futures contracts in another, probably related, market. When the futures 
spread is transacted in two different markets, it is known as an intermarket spread. 
Intermarket spreads are just as popular as intramarket spreads. 
One type of intermarket spread involves directly related markets. Examples 
include spreads between currency futures on two different international currencies; 
between financial futures on two different bond, note, or bill contracts; or between a 
commodity and its products - oil, unleaded gasoline, and heating oil, for example. 
Example: Interest rates have been low in both the United States and Japan. As a 
result, both currencies are depressed with respect to the European currencies, where 
interest rates remain high. A trader believes that interest rates will become more uni­
form worldwide, causing the Japanese yen to appreciate with respect to the German 
mark. 
However, since he is not sure whether Japanese rates will move up or German 
rates will move down, he is reluctant to take an outright position in either currency. 
Rather, he decides to utilize an intermarket spread to implement his trading idea. 
Assume he establishes the spread at the following prices: 
Buy I June yen future: 77.00 
Sell I June mark future: 60.00 
This is an initial differential of 17.00 between the two currency futures. He is 
hoping for the differential to get larger. The dollar trading terms are the same for 
both futures: One point of movement (from 60.00 to 61.00, for example) is worth 
$1,250. His profit and loss potential would therefore be: 
Spread Differential 
al a Later Date Profit/Loss 
14.00 $3,750 
16.00 - $1,250 
18.00 + 1,250 
20.00 + 3,750