CL patterns

CL price action Life cycle:

Brake out: happend on 9/29 after EIA , CL is in range bound 74-76 for 10 days while ES/EURO is climibing. after good EIA is pulled down ( MMs accumulating ) then after 1 hour broke out started and broke the 77 range by eod

Hihger highs: posted HH every day , higher high on consecutive days

( intraday high: buy $1.5 below puts, and SHOT very highs

intraday low: buy $1.5 above calls, go LONG ( with previously bought puts as insurance )

Top 1: topped around 84.40 ( buy $2 below puts )

Consolidate 1: then 2 days of consoildate 84.40 to 82. 40 ( wiat only go LONG/Short with previously bought puts/calls as insurance )

Shake Up 1: shake up day morning topped at 84.40 then shake up started . For shake up you need an event. This time the event is 10/8 job report . so a day before 10/7 morning shake up started with an excuse of EURO dropping. after morning high of 84.40 with EURO excudse CL dropped ( shaked ) to 82.30 , while EURO dropped only 1% form 1.40 to 1.36 , CL dropped 84.40 tp 82.40 ( close to 2.5 % ) .

- this shake up is predictable. next day 10/8 Job report ( employment numbers) is coming , so CL is very sensitive to it. and CL MMs want to shake it and they got a reason tommorrow JOB report and got excuse EURO dropping , so there goes Shakeup 1

( wiat only go LONG/Short with previously bought puts/calls as insurance )

then you may have Top 1.2: Consolidate 1.2: and Shake up 1.2

Consolidate 2:

Shapke up2:

Break down:

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todo:

- use freemind mind map http://freemind.sourceforge.net/wiki/index.php/Main_Page#Features

use this for CL short and medium term factor focusing .. like supply disruptions ( oil enbridge leak )

- based on this develop a expert system in PHP ( as a web page ) , it takes input a) what happened today like Enbridge disruptions b) how long it takes to situation to comeback to normal c) then based this input give TRADE ideas like LONG front/back contract spread

- and also see in the past how this pattern worked ( profit/loss , days etc.. ) so for this we need to give input of past events ( take goolge archieve with bloomberg news for last 10 years )

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Here are some identified CL price patterns ( market makers patterns on small guys )

1. Range break out: ( this happened on after EIA day , research other break outs )

CL trades in a range and do break out .

a) if trading in a low price band , then wait for EIA inventory data day that is wednesday and based on the positive report ( good drawdown ) , initial action is price down for 1 hour . This is preparation for big break out MMs accumulation phase.

- also CL vs. ES/EURO divergence continued for 1 week, so it is high time for CL to catchup with ES/EURO gains so MMs are waiting for EIA report to break out ( we can plot chart the divergence , when it reach certain % , break out is immenent )

ex: lower band range price for 1 week ending 9/28/10

- break out happened on 9/29/10 after 1 hour of EIA good report

2. Seasonal Drag: CL ignores ES and EURO due to seasonal factors:

it happens for extended period of time for about 1 week to 10 days .

- Happened form 9/15/10 to 9/28/10 , the reason being 'CL seasonal DRAG ' verified with MRCI drag from AUG 15 to 9/30

- when CL ignores ES and EURO check the seasonal DRAG factor , inversly If CL rising with out ES and EURO same thing check Seasonal factor ..

3. Range bound days , good time to short is Moring after 2 to 3% gain

early moring is better for shorting after 2.5% raise , you have whole day to let CL reverse course ( at leaset temporarily ). Do this with the help of VP predicted high/low values and ATR stops amibroker

4. last week of Seasonal Pattern trade exit: see MRCI patterns and enter at last 5 days of the 'seasonal trade period'

ex: 7/10/10 to 9/30/10 NOV long seasonal trade is there , so when at 9/25 it is trading at 7/15 price enter it for low risk and good potential ( workig this year 2010 from 9/25 to 9/30 )

- this one also has month end date 30 th, so there is some magic to work on these month end and EIA day break out etc..

5. Enter spread only at uppper range : see my other notes for DEC 2012/2011 spread entery when CL price is high for current month.

6. Hurricanes: you can enter spreads when Hurrcane is fading ..

7. supply disruptions: when pipe broke on friday 9/17 the spread of OCT/NOV came down to few cents from $1 , so grap these kind of one ..

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This should provide ( see CL market analyst ) guidelines for my own market analysis template, since it came from a well established energy trading firm JOB description

As a Market Analyst, you will: Provide on-desk analytical support to physical crude and oil products traders Build and maintain models to provide short and medium term analyses covering U.S. crude, products and natural gas liquids markets Analyze movements and trends in supply and demand, inventory levels, import and export, pricing, refinery margins, etc Regularly communicate with traders to develop new trading ideas Build analytical tools as requested by traders Provide analytical support to business development projects where needed

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mistakes done /lessons to learn

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1) 9/26 : did not have a stop , gave $1 always have stop for 30 cents else put

2) another $1 gave due to not knowing seasonal darg ( looking at ES and EURO donig good )

2) some time JULY last week in HYD: no stop gave $1 each on 2 contracts ( I am short and some gulf coast hurricane took it to $2 high no stop )

4) not knowing STOPLimit ( for overnight ) and STOP , I came to know recently with out it lost some and even after knowing did not implement 30 cent stop ..

5) did not follow ATR stops ( some days it did not work on PC amibroker , some days did not follow ) for entering ..

6) mainting : gains are 20 to 30 cents where are losses are $1 that is main factor ... no good Risk/reward Ratio .. for every entry I should have one

7) Bollinger bands and 9/50 EMA are good followed till some extentent ..

8) put/call protected LONG/short strategy works if followed strictly ...

Gurus , mentors

"100 successful traders may have 100 different strategies for making money.
But they all excel at finding low risk ideas and most importantly knowing when it's time to move on to the next idea." - Derek Hernquist

Kirk Ref ...

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Generating investment ideas

How do you generate investment ideas?
FS: I’m always trying to find mis-priced opportunities. Ideally, I’d like to find great, easily understood, businesses that are undergoing some form of indiscriminate selling. That sounds simple but it’s actually quite difficult. As boring as it sounds, I read a lot. I try to look where people are selling indiscriminately—redemptions, spin-offs, removal from an index, post bankruptcies, one-time events like a recall, etc.

I think a lot of investors, professional or otherwise, compromise. If they can’t find a compelling bargain they go for the next best thing. I’m not comfortable with that approach. There are a lot of smart people out there. Investing is basically saying the market it wrong and you’re right. You need to be sure you know more about the situation then the market and those opportunities don’t come around very often and they are usually research intensive. Given that you could be wrong, you need to afford yourself a margin of safety so if things change you can still recover your capital.

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OLD Trader

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http://pointsandfigures.com/?page_id=2553 - good Bio CME board member and Kirk ref.

http://pointsandfigures.com/?p=3472

http://pointsandfigures.com/?p=3472

1) Tell us about your career and your current firm
2) What has changed most in the past 10 years in the industry?

3) What has changed most since the financial crisis hit?

3. Volatility, and the fact that you have to keep one eye glued to a government hearing to make sure you don’t get caught backward in a trade. Markets don’t seem to trend. Money management. Used to be able to really load up and hit home runs. Not anymore. Risk/reward is really tight. It’s a much more risky business than it was.

8) What did you learn at Illinois that proved valuable in your career?

At Illinois I grew up a little. I learned to think better. Can’t point to one thing. I did have an argument with Gregg Oldham, a professor I had. We argued about motivational theory. I said people were motivated by money, he said they were more motivated by intrinsic aspects of the job that they could control. When I protested further he said, “I wrote the theory.” He was right. If you are successful, the money in trading is great. But what really makes is special is the total control you have over your life. Work when you want, how you want. Autonomy and freedom. You also have an idea of an expected outcome.

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Jesse Livermore’s 5 Money Management Rules

by: Bill Zimmer Friday, September 24th, 2010 at 9:37 am

If you haven’t read this book “Reminiscences of a Stock Operator” written in 1923, read it! It is purpordetly the unofficial biography of one of the greates traders ever; Jesse Livermore. The rules Jesse followed back at the turn of the last century are still very much applicable today.

1) Don’t lose money. Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line. There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.

2) Always establish a stop. A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital. I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining; tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take sour losses quickly and get out. Remember, never meet a margin call, and never average losses. Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me: “J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right,” and I would sell out of my position in the blink of an eye. I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes. Take your losses quickly. Easy to say, but hard to do.
(asr: yes CL patterns repeat , like 95 cent reversal always lead to $1 down side , 9/27/10 CL range ( 74-77) break out lead to $2 + every day , 2 week morning CL high and consolidate for the rest of the day , CL on Wesneday after EIA report drop on good EIA report to eventually break out in next 1 hour .. all these 3 patterns repeated .. last EIA repated couple of weeks ago ( as part of rage break out )

3) Keep cash in reserve. The successful speculator must always have cash in reserve.. .for exactly the right moment. There is a never-ending stream of opportunities in the stock market and, if you miss a good opportunity, wait a little while, be patient, and another one will come along. J.P. reach for a trade, all the conditions for a good trade must be on your side. Remember, you do not have to be in the market all the time. The desire to always be in the game is one of the speculator’s greatest hazards. When playing the stock market, there are times when your money should be waiting on the sidelines in cash.. .waiting to come into play. Time is not money — time is time, and money is money. Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely.

4) Let the position ride. As long as the stock is behaving normally, do not be in a hurry to take a profit. You must know you are right in your basic judgment, or you would have no profit at all. If there is nothing basically negative, then let it ride. It may grow into a very large profit. As long as the action of the overall market and the stock do not give you cause to worry, have the courage of your convictions, and stay with it. When I was in a profit on a trade, I was never nervous. Of course the opposite is true as well. If I bought a stock and it went against me I would sell it immediately. You can’t stop and try to figure out why a stock is going in the wrong direction. The fact is that it is going in the wrong direction, and that is enough evidence for an experienced speculator to close the trade. I do not and never have blindly bought and held a stock. To buy and hold blindly on the basis that a stock is in great company or a strong industry, or that the economy is generally healthy, is, to me the equivalent of stock market suicide. Stick with the winners. Let them ride until you have a clear reason to sell.

5) Take the profits in cash. I recommend parking 50 percent of the profits from a successful trade, especially when the trade doubled the original capital. Set the money aside, put it in the bank, hold it in reserve, or lock it up in a safe-deposit box. Like winning in the casino, it’s a good idea, now and then to take your winnings off the table and turn them into cash… .the single largest regret I have ever had in my financial life was not paying enough attention to this rule.

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http://stockbee.blogspot.com/2010/10/develop-process-loop.html

(asr: this works for my CL )

DEVELOP A PROCESS LOOP....

What do all successful traders do, they follow a process again and again and again. They have a process to analyze market, they have a process to identify long or short opportunities and a process to manage their position. They just keep looping that process.

For example everyday I have a process loop that I follow. Run Top 25 breakout, IPO, Episodic Pivots, and 4% bearish scans from 10 till 4 pm in evening during market hours. Every few minutes the process is repeated and then I identify opportunities out of them. Then again run the scans and again and again do the same thing.

What does the process do, it throws up opportunities like these regularly...

CL sources

Study this map:

we have so many factors to do supply disruptions which will increaes CL prices.

we have only one factor that keep CL prices low that is Global recession continues for many years.

think about one vs. many the odds. If there is any recovery , the human behaviour factor plays all the said disruption cards to keep prices around 90- 100 level.

China's oil demand increase 'astonishing', says IEA

Oil is trading at more than $82 a barrel http://news.bbc.co.uk/2/hi/business/8563985.stm this news is 12 March 2010: China's demand for oil jumped by an "astonishing" 28% in January compared with the same month a year earlier, the International Energy Agency (IEA) says. Oil prices were above $83 a barrel earlier today, the highest in two months, but dropped back to closer to $80 in late afternoon trading. The IEA said the high price level was due to "heightening of geopolitical tensions affecting some producing countries", but that this had been balanced by "ample physical oil supplies". Crude oil production by countries in the oil producers' cartel Opec rose to a 14-month high of 29.2 million barrels a day in February. --------

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sources that will help to make informed decisions on CL price moves

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http://www.tradercurrencies.com/currency-trading/83150/crude-oil-the-different-benchmarks-for-traders-and-investors/

NYMEX Futures

The NYMEX (New York Mercantile Exchange) futures price for crude oil, which is another major benchmark, represents on a per barrel basis the market value of a futures contract to either buy or sell 1,000 barrels of WTI or some other light, sweet crude oil at a specified time.

Although most NYMEX crude oil contracts are never executed for physical delivery, the NYMEX market supplies important price information to US buyers and sellers of crude oil in the US and around the world, making WTI the benchmark for many different crude oils, especially in the Americas.

Typically, the NYMEX futures prices tracks very closely the WTI spot price as above, although since the NYMEX futures contract for a given month expires 3 days before WTI spot trading for the same month ceases, there can be a period in which the difference between the NYMEX futures price and the WTI spot price widens noticeably.

OPEC Basket Price

For more detailed crude oil pricing, OPEC collects pricing data on a basket of seven crude oils, including: Algeria’s Saharan Blend, Indonesia’s Minas, Nigeria’s Bonny Light, Saudi Arabia’s Arab Light, Dubai’s Fateh, Venezuela’s Tia Juana Light, and Mexico’s Isthmus (a non-OPEC crude oil).

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0) with put/call range bound strategy: for NOV/2010 contract at the beiging of month 9/15/2010 ... the 75 put and call are same around 2.50 each so for $5 you get both ( 5k) put and call and we have 15 days to trade based on these ... it worked well when I tracked for 2 weeks till 9/25/ price in the range from 74 to 77 ..

1.1) asr: we can use this CL for Daily news if RItter bush is not available ..

found this guys analysis giving good glance on market ( mostly daily/weekly view).

http://fxmarketanalysis.wordpress.com/

All his articles are archived last 1 year, you just need to change page number in the url /page/xx/

http://fxmarketanalysis.wordpress.c...gorized/page/2/

and also about.com our commodity guy ...

1) good source to search reliable bloomberg source ( this is for current , 2) is for archieved )

http://www.google.com/advanced_search?q=crude+oil+site:bloomberg.com&num=50&hl=en&lr=&tbs=qdr:m&prmd=n

http://www.google.com/search?hl=en&as_q=crude+oil&as_epq=&as_oq=&as_eq=&num=50&lr=&as_filetype=&ft=i&as_sitesearch=bloomberg.com&as_qdr=m&as_rights=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images

( use, dygraphs to show prices from our 'prmium data' continuos data for CL as one price rolledup price for all contracts ...)

2) to search archieves , this gives all news source for any period, we can also filter just to use only Bloomberg.com etc.. http://news.google.com/archivesearch/advanced_search?as_user_ldate=2007/01/01&as_user_hdate=2008/01/01&num=50&as_price=p0&hl=en&q=%22crude+oil%22&scoring=a

- use also BBC as news source for google archieve , you get good articles ..

http://news.google.com/archivesearch?as_user_ldate=2007/01/01&as_user_hdate=2008/01/01&q=%22crude+oil%22&num=50&as_price=p0&scoring=a&hl=en&q=%22crude+oil%22&lnav=od&btnG=Go

asr: see this 1997 news , yelstin health caused the price change

http://news.google.com/archivesearch?as_q=&num=50&hl=en&btnG=Search+Archives&as_epq=crude+oil&as_oq=&as_eq=&as_user_ldate=01/01/1997&as_user_hdate=01/01/1998&lr=&as_src=&as_price=p0&as_scoring=a

2.2) we can develop for each month say OCTOBER , the what were the news for last 5 year and display by nice FORMAT (left tab , then right hand source .. ) to see how this current year OCTOBER prices can effect based on historic events . Like how in the past STROMS on golf coust effected prices ( esp. spreads with respect to front month and when the spread came back to normal after how many days )

3) Hurricanes

http://www.nhc.noaa.gov/2006atlan.shtml ( see all the 10+ years archieves )

http://www.nhc.noaa.gov/pdf/TCR-AL072006_Gordon.pdf

- this has detailed mpas of 9/10 to 9/24 wind speeds, graph OIL prices in those days how they moved and the spreads ( front to back month ) .

- do same for all year stroms and see the CL price patterns ... how they changed ....

- also from the history of many years , plot which months have many stroams and how the price moved .. ( buying calls as soon as you stroms starts at lower level ). When in HYD in AUG/2010 I had a CL short , and a Strom took it to +2 $ .... ( got news later ...)

http://www.gulfcoasthurricanes.com/category/gulf-coast-weather/

http://www.aoml.noaa.gov/general/lib/lib1/nhclib/mwreviews/mwreviews.html 100 years

4) weather derives

In this 3 part series, J. Scott Mathews President Weatherex LLC., explores the practice of hedging hurricane sensitive stock exposure using CME CHI products.

In part 1, he demonstrates the effects hurricanes can have on the market value of equity shares, using specific storm data from 2002 through 2008, and the related price movement of selected stocks.

In part 2, he explores the hurricane season of 2008 and compares the financial impacts of Hurricane Ike against share prices and shows how the CHI contract values could have been used to hedge the risk held by shareholders.

In the final installment he addresses the importance of hurricane forecasts in the media and the role that the insurance industry plays in the "hurricane business", tying it all together through the use of CHI options.

http://www.cmegroup.com/trading/weather/hedging-hurricane-sensitive-stock-exposure.html

http://www.cmegroup.com/trading/weather/files/WT138_Mathews_Hurricane_1.pdf

5) we already got CL news summary for a a web site get it

6) dygraphs support forum on google code:

http://groups.google.com/group/dygraphs-users/browse_thread/thread/4d2b7a6eeda198dc?pli=1

-

Dubai Mercentile exchange -

CME position limits

http://www.cmegroup.com/company/files/PositionLimitsWhitePaper.pdf

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as: It seems lots of these Dubai guys have link to NYMEX from this DME officially as this lists here ( these are cleared by CME NYMEX )

http://www.dubaimerc.com/about-us/about_dme.aspx

The DME is located within the Dubai International Financial Center (DIFC), a financial free zone designed to promote financial services within the UAE. The DME is regulated by the Dubai Financial Services Authority and all trades executed on the DME are cleared through and guaranteed by NYMEX (a member of CME Group), which is regulated by the U.S. Commodity Futures Trading Commission (CFTC) and is a Recognised Body by the DFSA.

http://www.dubaimerc.com/trading/getting-trade/index.aspx

Q. How can I trade on the DME?
A. The only requirement is to become a Guaranteed Customer. This can be achieved by opening an account with a DME Clearing Member, and meeting the requirements set out in Chapter 4 of the DME Rulebook. A list of the DME Clearing Members can be found here. A full list of CME Globex ® certified ISVs for trade execution can be found here.

http://www.dubaimerc.com/trading/rates/index.aspx

OQD Intra-Commodity Spread Tiers

Tiers		Months
1 1st Nearby 2 2nd - 18th Nearby 3 19th - 42nd Nearby 4 Greater than 42nd Nearby

Outright (Scan) Spread Tiers for OQD

Tiers		Months
1 All Months

OQD Intra-Commodity Spread Margins

Tiers		DME Member Margin/Hedger Initial Margin/Maintenance Margin		DME Guaranteed Customer (Non-Member) Initial Margin
0 New New 1 $450 $608 2 $400 $540 3 $300 $405 4 $300 $405

spreads : 5 ways to profit

Here is timing for entering spreads ( both long and short spreads )

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MRCI to PHP to DYgraphs

premium data -> csv files ( via PHP program )

MRCI to csv files (PHP program )

use PHP and DYcharts to pull those data for on demand sepread months and MRCI seasonal tables.

0) we need to have MRCI data stored in csv files and let PHP program parse and make it ready for web front end Dygraphs to display spread chart between any given months.

b) display MRCI table for a given CL seasonal like hardcopy table and sortable with

netprofit ( as % of entry price example: (80 - 75 )/75 * 100 = 5/75 * 100 = 20/3 = 7% so that is 1% is 75 cents , so 7% is $5 -> $5000 )

c) do not just use MRCI pure netprofit dollar , it does not tell rise from 25 to 30 in 2004 is not same as above 75 to 80 : 30 - 25 /25 = 5/25 * 100 = 20% wow that is diff even thought both are $5k . So this kind of % gives good probability indicator by taking avarge % increase of all 15 years ..

d) so this avg. % of netprofit motivates which seasonal spread to take

e) MRCI did not have any outright SHORT trades, only gave LONG trades. we need to construct SHORT trades also based on monthly charts. For example for NOVEMBER contract we have seasonal DRAG for this contract and this NOV peaked in by mid august .. with out knowing this we put LONG trades on OCT/NOV contracts ...

f) so having SHORT trades also gives when NOT to take LONGS based on seasonal DRAG and also gives good timing to position with calls/puts buys in adavcnce as required ..

g) see this image and related our post sakeda guy, see important of having Median , median gives better picture than avarage. see the standard deviation also and see where the 'Median profit ' is on SD bell cure . Is it at 20% percentile or 70% etc..

http://picasaweb.google.com/107181657007724588952/Vision?authkey=Gv1sRgCPDk-K6oqLKJ4wE#5428550777918555490

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9/30/10: today CL up 78 to 80.15 on top of yesterday up from 76 to 78 . basically 9/29 gave a range breakout to toside from 74 to 76 range for last 10 days .

1) so these 2 days cuased DEC 2012/DEC 2011 spread lost seems 15 + 15 : 30 cents

and DEC 10/NOV 10 spread lost 50 cents in 2 days , no spread trades at $1 (few days ago $1.5 ) and when OCT 10/NOV 10 at time of OCT expiry on 9/22 the spread is $2.25

2) it seems even for LONG 1 yr spread like DEC 12/DEC 11 , it is better to enter when current month is at its peak , you get lower price and the time that is next 1 month is in your favour . I think this kind of situation will surly gives 30 cents/month for LONG spreads when entered at this time.

3) since we have breakout on 9/29 , so it good first day of break , this day is good to buy CL 82 call preparing for 82 short of NOV contract in few days ..

4) on MRCI has a 7/10 to 9/30 NOV Long CL trade, 7/10 price of NOV is 75 , so there is good chance it will do good this year , so it proved .. hindsight could CL Long would have been good entry on 9/26 based on this seasonal ... ( even with a 74 put as protection .. )

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as: 5 ways esp. with OIL long leg/short leg can act in 1 year in one of these 5 ways ..

http://www.futurestradingpedia.com/futures_spreads.htm

Why Use Futures Spreads?

There are two main reasons why futures spreads are being used; Increase In Profit Avenues and Lowering of Margin Requirement and risk.

Increasing Avenues of Profit
While going long or short futures contracts outright only earn you profits when the futures contracts you traded move in your predicted direction, futures spreads are really capable of profiting in 5 different ways:

1. When the long leg rises and short leg falls. This usually happens when the basis is extremely large on the far term futures contracts and the underlying asset moves up slowly.

2. When the long leg rises and the short leg remained unchanged.

3. When the long leg rises and short leg rises at a lower rate. This is usually what happens when near term futures with higher volatility is bought and far term futures with lower volatility is shorted.

4. When the short leg falls faster than the long leg.

5. When the long leg remains unchanged and short leg falls.

As you can see above, futures spreads greatly increases the avenues of profits even though it does not have the explosive potential of outright futures speculative positions. In fact, all of the above 5 points say only one thing and that is, futures spreads profit through the price difference of the long and short leg instead of the price action of the underlying itself!

Lowering Margin and Risk
Apart from increasing the avenues of profit, futures spreads are valued for their ability to limit risk. Futures spreads are really trading the difference in price (the "Spread") between the long and short legs and such price difference tends to trade within a determinable range! That's right, this makes trading futures spreads a lot more predictable and subject the futures trader to much lower risk.

Apart from lowering the risk involved, putting on a spread also decreases your initial margin requirement dramatically. You could pay up to ten times lesser initial margin for a futures spread versus an outright position. This will enable you to put on a lot more positions for greater ROI! In fact, futures spreads are so effective that most futures brokers quote futures spread position directly for trading as if it is one asset on its own!

Types of Futures Spreads

There are 3 broad categories of futures spreads, the Intramarket Spread, Intermarket Spread as well as the Inter-EXchange Spread, which can then be categorised by function into either Bull Spread, Bear Spread, calendar spread or Butterfly Spread as well as by specific commodities such as the Crush Spread in soybean futures trading and the Crack Spread in crude oil futures trading.


Intramarket Spreads
Also known as "Calendar Spreads", "Intracommodity Spreads" or "Interdelivery Spreads". These are futures spreads using futures contracts of the same underlying but different expiration months. Intramarket spreads trade the price difference between futures contracts of different months on the same underlying. Due to carrying charges, there is usually a price range within which this difference can be thus making it easy and predictable to trade such futures spreads, using a bull spread when price difference is low and using a bear spread when price difference is high.

Another form of Intramarket Spreads is the "Intercrop Spread" which is a futures spread consisting of futures contracts of different harvest periods or "Crop Years".


Intermarket Spreads
Also known as the "Intercommodity Spread", are futures spreads using futures contracts of different but somewhat related underlying assets. Examples of related underlying assets commonly used in intermarket spreads are Gold/Silver, Soybean/Corn, Wheat/Corn, Soybean/Soybean Meal and Crude Oil/Heating Oil. Intermarket spreads are not only good for speculating on the price difference between two seasonally related products such as Gold and Silver, these futures spreads are also used by processors of raw material for locking in the profit margin involved in turning a raw material such as Soybean into its products such as Soybean Meal.

The huge depression in the profit margin of oil refineries in May 2010 demonstrated the importance of locking in profit margin through the crack spread, which is an intermarket spread between crude oil futures and gasoline as well as heating oil futures.


Interexchange Spreads
Also spelled as "Inter-exchange Spread". These are futures spreads consisting of futures contracts of the same underlying traded in different exchanges such as the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBOT). An example of an Interexchange spread would be simultaneously Long December Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of December Kansas City Board of Trade (KCBOT) Wheat.

There are two main purposes in using interexchange spreads. One of them is to take advantage of price discrepancy in the same futures contract traded in different exchanges and the other is when a better price is available in another exchange for putting on a calendar spread.


Bull Spreads
These are futures spreads that are structured to speculate on a spread price narrowing when the underlying asset is expected to move higher. This is done by being long on near term futures contracts and short on far term futures contracts. Learn more about Bull Spreads.


Bear Spreads
These are futures spreads that are structured to speculate on a spread price widening when the underlying asset is expected to move lower. This is done by being short on near term futures contracts and long on far term futures contracts. Learn more about Bear Spreads.


Calendar Spreads
These are any futures spreads that go long and short on futures contracts of different expiration months. In fact, there are calendar spreads for every of the three main broad categories of futures spreads. In fact, both Bull Spreads and Bear Spreads are calendar spreads as well.


Butterfly Spreads
These are futures spreads that consist of three legs instead of the traditionally used two legged futures spreads. It is a combination of a bull spread and a bear spread on the same underlying asset as a low volatility spread speculating on the spread difference of the futures contracts involved when the underlying asset is remaining relatively stagnant.