In today's volatile and sometimes uncertain markets, traders looking for a way to protect themselves should consider using spread trading. A spread is buying one futures contract and selling a related futures contract to profit from the change in the differential of the two contracts. There are different types of spreads and different methods for using each. Calendar spreads are done by simultaneously buying and selling two contracts for the same commodity or option with different delivery months. For intermarket spreads, sometimes called inter-commodity spreads, you are buying and selling different but often related commodities, usually in the same expiration month. There are also unique spread strategies for certain commodities. You can trade the crack spread by buying heating oil and unleaded gasoline futures and selling crude oil futures. In a crush spread, you simultaneously trade soybean futures vs. their products, soybean oil or soybean meal.
Spread 'em Christine Birkner Futures; Jun 2010; 39, 6; Docstoc pg. 50 Reproduced with permission of the copyright owner
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