Chapter 35: Futures Option Strategies for Futures Spreads 697 
ical commodity until futures expiration. However, other factors may enter in as well, 
including supply and demand considerations. In a normal carrying cost market, 
futures that expire later in time are more expensive than those that are nearer-term. 
Example: Gold is a commodity whose futures exhibit forward or normal carry. 
Suppose it is March 1st and spot gold is trading at 351. Then, the futures contracts 
on gold and their respective prices might be as follows: 
Expiration Month Price 
April 352.50 
June 354.70 
August 356.90 
December 361.00 
June 366.90 
Notice that each successive contract is more expensive than the previous one. 
There is a 2.20 differential between each of the first three expirations, equal to 1.10 
per month of additional expiration time. However, the differential is not quite that 
great for the December, which expires in 9 months, or for the June contract, which 
expires in 15 months. The reason for this might be that longer-term interest rates are 
slightly lower than the short-term rates, and so the cost of carry is slightly less. 
However, prices in all futures don't line up this nicely. In some cases, different 
months may actually represent different products, even though both are on the same 
underlying physical commodity. For example, wheat is not always wheat. There is a 
summer crop and a winter crop. While the two may be related in general, there could 
be a substantial difference between the July wheat futures contract and the 
December contract, for example, that has very little to do with what interest rates are. 
Sometimes short-term demand can dominate the interest rate effect, and a 
series of futures contracts can be aligned such that the short-term futures are more 
expensive. This is known as a reverse carrying charge market, or contango. 
INTRAMARKET FUTURES SPREADS 
Some futures traders attempt to predict the relationships between various expiration 
months on the same underlying physical commodity. That is, one might buy July 
soybean futures and sell September soybean futures. When one both buys and sells 
differing futures contracts, he has a spread. When both contracts are on the same 
underlying physical commodity, he has an intramarket spread. 
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