Spread question

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TradingCoach
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Spread question

Post by TradingCoach »

A typical bullish spread the speculator would initiate by being long the nearest month and sell a further out month.
A typical bear market the speculator would initiate by being short the nearest and buy the more distant month.

Now I have an old book by Tom Kallard where he states that for gold the bull spread is selling the nearby and buying a further month. Is that a typo or gold is a special beast? Anyone care to comment.

PS. the book is "Fortune building commodity spreads for the 90's"
edward kim
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Re: Spread question

Post by edward kim »

TradingCoach wrote:A typical bullish spread the speculator would initiate by being long the nearest month and sell a further out month.
A typical bear market the speculator would initiate by being short the nearest and buy the more distant month.
This statement is true and untrue, depending on the market you are trading.

True for softs and deliverables like oil and wheat. That's when you a have a supply crunch, and the basis turns positive.

Untrue for the S&P 500 index. If you are bullish, you short the nearby, and go long the distant months.

I haven't seen gold go inverted for a long long time, so a spread on gold will be a play on interest rates, which is one of the components of the carrying charge.

You might want to verify this with a spread trader, because I am a long-term trend follower, and I don't know much about spreads and basis trading.

Edward
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Thanks

Post by TradingCoach »

I am a LT trend follower too but my clients are always seeking a cheaper way of playing the futures markets. With the advent of mini contracts there is little need for spread trading but it can be a useful knowledge even determining the trend signals. I trade the energy markets and currencies as spreads. For example instead of shorting the dollar index.
I rather buy the swiss sell euro and save a whole lot of margin plus volatility headacke.
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