Inter-commodity spread through options

[Distortion]

Is it possible to use options to create an option on an inter-commodity spread?

For example, say I thought corn was under priced against wheat, and believed corn would be priced relatively higher than wheat by the next futures contract expiry. Is it possible to buy(/sell) a combination of options giving me the right to buy the inter-commodity spread between corn and wheat if it is above my strike price?

I hope that makes sense, and hope there is a viable strategy to do this.

 

[Martinghoul]

It can be done, in theory, but it's somewhat complicated...

 

[gooseman]

it begs the question why use options to do this really. a futures/cash spread takes directionality out of the equation.

 

[Distortion]

I'm looking for a fixed maximum loss if I am wrong. I'm relatively new to tradig, so am just looking into new ideas. Gooseman - can you explain more? Will my losses be limited, without using a stop?

 

[gooseman]

there are a number of ways of structuring a spread cross-product but by the nature of options you'll have to introduce directionality of each product into it (obviously i wouldn't encourage you to sell options given that by your own admission you are relatively new to this options lark). for example the undepriced commodity you could say buy a call and the overpriced buy a put but in reality the spread could converge but not hit your strikes. there are many, many combinations you could use but for what you're suggesting (and keeping a volatility aspect out of it) i'd stick to vanilla future/cash sperad trading.

you also will have to appraoch your scaling/hedge ratios for the commodities.