49 lines
2.0 KiB
Plaintext
49 lines
2.0 KiB
Plaintext
704
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TABLE 35-3.
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Profit and loss of crack spread.
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Contract
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2 March Crude
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1 March Unleaded
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1 March Heating Oil
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Net Profit (before commissions)
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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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Part V: Index Options and Futures
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Subsequent
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Price
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18.50
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.6075
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.5575
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Gain in
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Dollars
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+ $1,000
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- $ 315
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- $ 315
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+ $ 370
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One can calculate that the crack spread at the new prices has shrunk to 5.965.
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Thus, the spreader was correct in predicting that the spread would narrow, and he
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profited.
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Margin requirements are also favorable for this type of spread, generally being
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slightly less than the speculative requirement for two contracts of crude oil.
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The above examples demonstrate some of the various intermarket spreads that
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are heavily watched and traded by futures spreaders. They often provide some of the
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most reliable profit situations without requiring one to predict the actual direction of
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the market itself. Only the differential of the spread is important.
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One should not assume that all intermarket spreads receive favorable margin
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treatment. Only those that have traditional relationships do.
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USING FUTURES OPTIONS IN FUTURES SPREADS
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After viewing the above examples, one can see that futures spreads are not the same
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as what we typically know as option spreads. However, option contracts may be use
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ful in futures spreading strategies. They can often provide an additional measure of
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profit potential for very little additional risk. This is true for both intramarket and
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intermarket spreads.
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The futures option calendar spread is discussed first. The calendar spread with
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futures options is not the same as the calendar spread with stock or index options. In
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fact, it may best be viewed as an alternative to the intramarket futures spread rather
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than as an option spread strategy.
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CALENDAR SPREADS
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A calendar spread with futures options would still be constructed in the familiar
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manner - buy the May call, sell the March call with the same striking price. However, |