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