Spreads

From MarketsWiki

Spreads refer to market trades that try to exploit the spread between bid and ask prices of an asset or commodity. They are often traded on derivatives markets as futures or options. On commodities markets they are called straddles and usually refer to trading the price difference between two different futures contracts in that commodity.^[1] Spread trades are long/short futures positions that give traders exposure to that spread.^[2]

To trade spreads, traders typically use pairs of options that either have the same maturity but different underliers (intracommodity spreads) or the same underlier but different maturities (intercommodity or calendar spreads). In options trading, commonly-employed intracommodity strategies are the back spread and the ratio spread, both of which use differing strike prices. Energy traders use the crack spread to trade the price of crude versus refined.

References

1. ↑ Commodity Spreads. Keystone Marketing Services. Retrieved on April 16, 2008.
2. ↑ Futures Spreads. RiskGlossary.com. Retrieved on April 16, 2008.