31 lines
2.0 KiB
Plaintext
31 lines
2.0 KiB
Plaintext
476
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A Complete Guide to the Futures mArket
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P1 = $0.80, an 80-contract forward/81-contract nearby spread would not be affected by equal price
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changes (e.g., a 10-percent price increase would cause a total 64,800-point change in both legs of the
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spread). As can be seen in this example, a balanced spread will only be possible for extremely large
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positions. This fact, however, does not present a problem, since the distortion is sufficiently small so
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that a 1:1 contract ratio spread serves as a reasonable approximation.
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Intracurrency spreads can also be combined to trade expectations regarding two foreign euro-
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currency rates. In this case, the trader would implement a long nearby/short forward spread in the
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currency with the expected relative rate gain, and a long forward/short nearby spread in the other
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currency. For example, assume that in February the June/December euro spread implies that the
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June six-month eurodollar rate will be 1 percent above the euro rate, while the June/December JY
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spread implies that the June eurodollar rate will be 2 percent above the euroyen rate. In combina-
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tion, these spreads imply that the June euro rate will be higher than the June euroyen rate. If a trader
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expected euroyen rates to be higher than euro rates in June, the following combined spread positions
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would be implied: long June JY/short December JY plus long December euro/short June euro.
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T o summarize, intracurrency spreads can be used to trade interest rate differentials in the follow-
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ing manner:
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expectation Indicated trade
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eurodollar rate will gain on given eurocurrency rate
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(relative to rate ratio implied by spread).
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Long forward/short nearby
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spread in given currency
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eurodollar rate will lose on given eurocurrency rate
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(relative to rate ratio implied by spread).
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Long nearby/short forward
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spread in given currency
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eurocurrency rate 1 will gain on eurocurrency rate 2
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(relative to rate ratio implied by spreads in both markets).
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Long nearby/short forward spread in market 1 and long
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forward/short nearby spread in market 2 |