There’s a misconception that trading calendar spreads is for professional traders only. Well we think that notion is wrong and are here to show you that anyone can learn to trade futures calendar spreads.
There is often confusion with futures calendar spread terminology because there are several different terms for futures calendar spreads.. They can be called:
- Futures Time Spreads
- Futures horizontal Spreads
- Intermonth Spread
- Interexpiration Spread
Don’t get confused if you hear any of these other terms, they all mean the same thing.
Introduction To Futures Calendar Spreads
What Is A Futures Calendar Spread?
A futures strategy the consists of buying/selling futures contracts that have different expiration months together as one position.
How Do Calendar Spreads Profit?
Futures Calendar Spreads Profit from the difference in rate of movement between near term futures contracts and longer term futures contracts.
Instead of profiting from movement of an underlying product in a single direction, calendar spreads can profit from up to 5 different scenarios related to the price movement between near term and long term futures contracts.
Why use a futures calendar spread?
Utilizing futures contracts that have different expiration months in order to produce a bullish/bearish position that can be less volatile that an outright long/short position.
Because this strategy is less volatile, they also require less margin than outright futures positions, which results in a smaller buying power requirement and generally, a greater return on capital. It requires less margin because one contract is hedged by the other contract, which is great for traders with smaller accounts.
Bull vs. Bear Futures Calendar Spreads
As with any type of trade, with futures calendar spreads, you can be bullish or bearish.
Bull Spreads
These calendar spreads are long the near term futures contract and short the longer term futures contract.
Bear Spreads
These calendar spreads are short the near term futures contract and long the longer term futures contract.
Types Of Commodity Future Spreads
There are two main types of futures calendar spreads:
- Intra-Commodity Calendar Spread - buying a futures contract and simultaneously selling another futures contract in the same commodity, with different expirations
- Inter-Commodity Calendar Spread - buying a futures contract and simultaneously selling a futures contract in different commodities, with different expirations
Strategies: Futures Calendar Spreads
Products Discussed In This Episode: N/A
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