Spread Trading – The Alternative Trading Strategy

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Old Oct 5, 2012, 1:00pm   #1
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Spread Trading – The Alternative Trading Strategy

We've just published a new T2W article called "Spread Trading – The Alternative Trading Strategy" by Jay Richards.

Quick Summary: Jay Richards explains how spread trading can offset the often volatile and erratic nature of outright positions and ways in which it can be used to profitable effect

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Old Oct 29, 2012, 6:17am   #2
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Re: Spread Trading – The Alternative Trading Strategy

Hello Jay
Is there any way to protect a Long or Short Calnder spread position?
The Calnder SPread Options are not liquid!
ANy synthetic way? using individual contract Options?
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Old Nov 2, 2012, 12:08am   #3
 
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Re: Spread Trading – The Alternative Trading Strategy

Quote:
Originally Posted by moka2 View Post
Hello Jay
Is there any way to protect a Long or Short Calnder spread position?
The Calnder SPread Options are not liquid!
ANy synthetic way? using individual contract Options?
Calendar spreads already have built-in protection because you are long and short the same commodity. The reduction in volatility is a form of protection.
I do not use options in any of my trading, only calendar spreads using futures contracts. Stay in markets that are efficient i.e. plenty of volume and open interest.
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Old Nov 29, 2012, 5:10am   #4
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Re: Spread Trading – The Alternative Trading Strategy

Quote:
Originally Posted by just spreads View Post
Calendar spreads already have built-in protection because you are long and short the same commodity. The reduction in volatility is a form of protection.
I do not use options in any of my trading, only calendar spreads using futures contracts. Stay in markets that are efficient i.e. plenty of volume and open interest.
Calender spreads although are hedged tardes as you mention .. they still have a downside risk
What I was refering to was hedging that risk using Options on Calender Spread called CSOs
I know there are flor traded CSO on Eurodollar Spreads and Oil spreads but finding hard to fidn a broker who knows them!
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Old Dec 1, 2012, 1:43am   #5
 
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Re: Spread Trading – The Alternative Trading Strategy

Quote:
Originally Posted by moka2 View Post
Calender spreads although are hedged tardes as you mention .. they still have a downside risk
What I was refering to was hedging that risk using Options on Calender Spread called CSOs
I know there are flor traded CSO on Eurodollar Spreads and Oil spreads but finding hard to fidn a broker who knows them!
You can get creative with butterflies, condors, or other "boxes" - spread one spread against the next. Just be careful as commissions go up and volatility goes down. Or if you want to use options, it is uncommon (but definitely not unheard of) to see a calendar "twist" without a significant move in the outright. So maybe buying the volatility on the outright would help.
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Old Dec 3, 2012, 2:33am   #6
 
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Re: Spread Trading – The Alternative Trading Strategy

I agree with the posting from Oskeewow that costs go up. Without some measured amount of risk and expectation then there is no trade opportunity. More importantly, you create an additional level of risk by involving options on top of a simple calendar spread unless you have a profound view of price and time for any particular calendar spread. Many professional and commercial traders do spread one one against another on large volume i.e. short DEC 12/DEC 13 vs long MAR 13/MAR14 on thousands of contracts.
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Old Dec 3, 2012, 3:30am   #7
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Re: Spread Trading – The Alternative Trading Strategy

So what about CSO?
I was thinking if Oil Calnder spreads are not that volatile why not do Covered call writing

Buy Oil Calnder spread
Sell CSO on the same spread

No body sems to know about CSOs
By the way OKseewow can you explain in simple terms what that means
My question is if things start going wrong for your Calnader spread position what can one do?
Just Spreads can you give a worked example of "short DEC 12/DEC 13 vs long MAR 13/MAR14 on thousands of contracts. " how it would work!
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Old Dec 3, 2012, 3:46am   #8
 
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Re: Spread Trading – The Alternative Trading Strategy

#1 There is merit in your idea of using CSOs but I do not use options.
#2 In all trades I employ a STOP loss i.e. a money STOP which is equal to the initial margin; or select a price/chart level and close out the position after two closes over that level; or you can 'fine tune' the exit/stop level as two consecutive closes over a selected price.
#3 short DEC12/DEC 13 Eurodollar spread and long the MAR 13/MAR 14 Eurodollar spread. Here you would be looking a a slight widening of the near-term US yield curve. This approach has even less volatility than holding either of the two underlying spreads and far less than any outright position. Hope this helps, keep up the good probe, if not come back and continue the dialogue.
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