Scribd
Upload
38 views1 page

Calendar Spreads

Uploaded by

Satish Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
38 views1 page

Calendar Spreads

Uploaded by

Satish Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Calendar spreads

A calendar spread is a trading strategy that simultaneously combines a long futures contract
and a short futures contract in the same commodity but for different delivery months.

For example, selling January and buying February in Whole Milk Powder futures. Calendar
spreads are commonly used to ‘roll’ positions over near the expiry of a contract month. For
example, a trader with a long position in January futures may wish to keep their hedge in place
rather than letting it go to settlement. To maintain their hedge the trader can choose to roll their
position over using calendar spreads, whereby they sell their January futures position close to
expiry and buy a February futures contract in one transaction. This has the effect of extending
the traders hedge position from January to February.

Calendar spreads can also be used by speculative investors to express a view on the shape of
the futures curve. An investor who believes that a flat futures curve might steepen, meaning that
longer-dated contracts will rise more than nearer-dated contracts, they might choose to sell a
near dated month and buy a long-dated month to profit from such a move.

Spread strategies are popular as they typically involve less risk and more efficient execution
than outright futures positions, and as a result, also tend to have lower margin requirements.

Without calendar spreads to roll a position a trader must make a separate buy and a separate
sell order, resulting in legging risk where there is a risk of one contract known as a ‘leg’ being
filled and not the other. Calendar spreads reduce this risk as both contracts are traded
simultaneously, removing the risk of being left with one outright position not being filled and
exposed to adverse market movements.

Calendar spreads in general require less margin than trading an outright future as you are
simultaneously buying in one contract month and selling in another, therefore creating an offset
position although in different contract months. The justification for the lower margin rate is that
spreads are not influenced by movements in the physical commodity or asset directly, rather the
difference in prices between months, as a result they tend to be less volatile. Note that when
using a calendar spread to roll an existing position, the net position remains the same and no
margin offset is gained. Calendar spreads are available on all NZX dairy futures contracts.

To learn more, please refer to our other educational videos at nzx.com here.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy