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Buy or Sell Front Month and do opposite for Back Month


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WoodyFox's Avatar
 WoodyFox 
Columbus, Ohio
 
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I'm looking for a thread or some literature on why an institution may buy or sell a commodities front month contract and then simultaneously do the opposite for the back month. I'm sure there are different reasons depending on the commodity in question. It would be nice to see some examples of this playing out and how one could benefit (if you even can?). I have noticed, especially when a contract is nearing end, that opposing iceberg orders come in between contracts with matching time stamps. The orders are always institutionally large orders relative to the product. Maybe this is just coincidental and nothing more than just opposing outlooks, so I'm really just trying to fill my curiosity and understand any relevance.


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 Schnook 
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Hey Woody
What you're talking about is called calendar spread trading. There are actually many traders who focus exclusively on spreading. In the physical commodity markets things like storage costs and seasonality play a big role in determining spread valuations, whereas in financial futures, espcially rates products, considerations such as carry, financing costs, and the expected path of short-term interbank lending rates comes into play.

In terms of sheer volumes, the eurodollar futures market trades more spreads than any other market. If you really want to dive deep on the subject, start there.

For some introductory literature, the CME webpage is actually not a bad place to start. See here --> https://www.cmegroup.com/education/courses/understanding-futures-spreads/futures-spread-overview.html

For threads here, just search "calendar spreads" and you'll find plenty of results.


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Last Updated on August 14, 2020


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