Strategy · Spread Trading
CALENDAR SPREADS
NeutralDefined riskIntermediate
Overview
Buying one expiration month and selling another in the same commodity. Profits from changes in the price difference between months rather than outright direction.
Setup
- 1.Buy front-month contract.
- 2.Sell back-month contract (or vice versa).
- 3.Same underlying commodity.
Max profit
Depends on the spread widening or narrowing.
Max loss
Generally lower than outright positions but can be substantial in extreme term structure shifts.
Breakeven
Entry spread difference.
When to use
When you want to trade supply/demand dynamics across time with lower directional risk.
When to avoid
During unprecedented supply shocks that can cause extreme term structure moves.