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"
Spread question
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- Roundtable Knight
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- Roundtable Knight
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Re: Spread question
This statement is true and untrue, depending on the market you are trading.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.
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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- Roundtable Knight
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Thanks
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.
I rather buy the swiss sell euro and save a whole lot of margin plus volatility headacke.