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Spread
Scan Issue: November 28, 2007 - Volume 172
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Joe Ross Spread Trading Newsletter.Each week we present spread trading examples and opportunities in order to
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Today we consider a calendar spread: long November 2008 Soybeans and
short March 2008 Soybeans (SX8 – SH8). This spread is what we call a bear spread:
the nearby month is at the sell side, the more deferred month is at the buy side.
We usually expect a falling outright market when we enter into a bear spread.
(Outright futures trader, please note – spreads seem to turn their direction before
the outright futures market. A turn of the spread above to the up side could be a
signal for an upcoming falling Soybean market!). 15 year seasonality of the spread
usually goes from 01/01 till 02/05, but the 5 year seasonality starts much earlier
(app. 11/01). A possible trading idea could be to open the trade with only ½ of the position and add on contracts later.Traders may want to enter the spread at -70. Initial margin is $1,080.
Suggested risk is $700. Initial projected objective is $700, then a move to break
even or higher. Basis is seasonal (app. 1/1 – 2/5) and a 1-2-3 low.
On November 18 we told subscribers of our professional daily spreads & position
trading newsletter Traders Notebook, "Consider entering a currencies spread
625*BPZ7 – 1000*CDZ7 (elec.) MOC on Monday 11/19.
Initial margin for the spread is $2,725 (no reduced margin).
Suggested risk is $2,200. Initial projected objective is $2,200, then a move to
$31,000 or higher. Basis is seasonal (app. 11/26 -12/19) and a Ross Hook.
Comment: Currencies spreads can produce nice profits but also big losses.
Only for traders with deep pockets."
Here's how we suggested managing this trade:
11/19 In? Suggested mental stop at $24,100.
11/20 Suggest moving stop to $25,200.
11/26 Suggest moving stop to $25,900.For more information about our daily newsletter, visit our Spread Website to find
out more about Traders Notebook
Questions or Comments? Please email us: support@spread-trading.com
Student's Question: "Andy, what is a “Crush Spread?"
Andy: The spread is defined as buying one futures contract, and selling a different,
but related futures contract. Specifically, when trading the crush spread, you would
buy soybeans and sell its respective products, the soybean meal and soybean oil.
This is what is referred to as being crushed. If you buy the soybean meal or the
soybean oil and sells soybeans, that is what is referred to as being reversed crushed. Soybeans alone have relatively little value. The value of soybeans is the fact that when crushed, the products have great value globally. Soybean meal is of value to the farms that raise chicken and hogs. Soybean meal is rich with protein and is fed to these animals to fatten them up. Soybean oil is of value across an array of industries. Primarily, soybean oil is used in food as one of many available edible oils. Soybean oil is also being used in a mixture to create an alternate source of energy to compete with crude oil. These uses and others of the products give soybeans their value.
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gets the job done!
Joe Ross, along with Trading Educators, pioneered the first complete and best Spread Education Program around the globe, and was inspired and motivated to pass on to others the knowledge and skills he acquired from over 50 years as a versatile and eclectic professional trader.
Andy Jordan, who was personally trained by the master himself, has a real talent for Spread Trading and enjoys training new Spread Traders through his solid experience. He is skilled and gifted - our genius in Spread Trading.
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads or outright futures is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!