Spread Trading - Strategy & Calculation

[VBS2010]

I would prefer Zinc-Lead.....As i have never analysed Gold-silver spread.(reason i said you before)

About how long one needs to hold on the position ......it all depends...I dont mind holding it for the entire month as long as it gives me min profit of
Rs.10000/-...on an investment of 1L (50k zinc and 50k for lead). Well it comes to 10%...thats should be good.

If you have gone thru the excel sheet, must have notice that bear spread call has took long time...than a bull spread.
the current bull call is running since long, expiry is near, yet the difference is 4rs.

Thanks Dear Mehtaka,

that is good if holds for 1 months.
i am also analysis on excel sheet of zinc-lead. currently spread is going on around 4.20 and 4.10 for december Month. from my view i think that spread range is Max. +5 to minimum -2. Is that true? what is ur view on spread range. If i am right on spread range so it is good time to make position in december with gap around +4.20 (LeadMini - Zinc Mini).

Also want to know that why say like not take any position before 7days of expiry date.

VBS.

 

[mehtaka]

Thanks Dear Mehtaka,

that is good if holds for 1 months.
i am also analysis on excel sheet of zinc-lead. currently spread is going on around 4.20 and 4.10 for december Month. from my view i think that spread range is Max. +5 to minimum -2. Is that true? what is ur view on spread range. If i am right on spread range so it is good time to make position in december with gap around +4.20 (LeadMini - Zinc Mini).

Also want to know that why say like not take any position before 7days of expiry date.

VBS.

By analysising sheet...if the range goes abv 4..its a good entry level.....
you can def take the position on dec expiry. But if you doing it for the first time, i would suggest to paper trade for few trade, get the confidence...adn then trade.
Also as Mr.Iguru said, u should have a s/l of 20k i.e 4 rs max.

about taking position before 7 days of expiry, well how would u know that you will get a good spread beofre the 7 days of expiry?.
Definitly the current scenerio is showing the same what u said.

if you analysis abt gold-sil do let me know.
if you der on yahoo...add me kaushal_124

 

[VBS2010]

Currently Lead-Zinc Dec is going at Spread of 6.40
Why so much spead?
Can Any1 has idea?

VBS

 

[tex.naresh]

hi iguru,

i want to ask - when to enter in c/oil spread and wats the strategy.

can pls provide me the excel for the same.

 

[kumarp_1661]

as i already discussed in my previous article spread trading - a simple trading strategy for maximizing your profits about some basics of spread trading.

Link: http://www.traderji.com/commodities...trading-strategy-maximizing-your-profits.html

here, i will focus on the different strategies for spread trading and to calculate how to find the spread opportunity.


But before going forward, i would like you to remember few thing w.r.t. Spread:

Do spread on gold, silver, copper, zinc and in cross commodities like lead & zinc. (currently ignore any other commodities or combination of commodities....... Im working on it and will keep update on time to time.)

never do spread in any commodities for last 7 trading days before contract expiry.

For any abnormal behaviour in spread, always check for some market news (which must have affected it) before taking the spread position.

For spread calculation use maximum 20-25 days of historical data.

Every day your spread differences keep on changing, so we need to update it on daily basis to understand the spread gap and to apply the strategies.

In spread trading, you will gain in one contract and loss in another, very rarely you find that you gain in both the contract.

Don't do spread in gold & silver for dec expiry contract (as i never find a good opportunity for spread)


now we will come to the strategy:

there are two types of strategies for spread: Bull spread & bear spread

bull spread
this strategy is applied when the spread gap between the two contracts (gold far month contract gold near month contract or lead oct contract zinc oct contract) is more or widen.

bear spread
this strategy is applied when the spread gap between the two contracts (gold far month contract gold near month contract or lead oct contract zinc oct contract) is less or narrow (gap between the two contract become zero or negative figs.)


calculation:

here, im taking the example of spread between the lead & zinc (my favourite one):

first take the historical data for last one month from mcx website (mcxindia.com market data bhav copy bhav copy commoditywise)

then take the spread gap between the closing price of each day (spread gap = lead closing price zinc closing price) for last one month

take the "average" of those spread gap of the closing prices and also the "standard deviation" of those spread gap of the closing prices for last 20-25 days.

Now we will have two figs........ That is average & standard deviation.


now comes the final part that is the decision making and implementation of spread strategy:

bull spread range = average + standard deviation

if the spread gap > bull spread range, then we will go for bull spread strategy. It means we will sell the far month contract or lead contract and buy the near month contract or zinc contract.

bear spread range = average - standard deviation

if the spread gap < bear spread range, then we will go for bear spread strategy. It means we will buy the far month contract or lead contract and sell the near month contract or zinc contract.


important point:

i have attached an excel file: Spread analysis lead & zinc for your reference to understand the calculations.

for calculating the spread gap between the two contracts, i always subtract from far month to near month contract for spread calculation. If you will change this calculation scenario then your strategy will also change.

For lead & zinc spread, i found that there bull & bear spread gap is around rs. 2.5 to 0 even to -0.5. Any time if you find a spread gap of rs. 4 to 5 or rs. -2 to -3 will be a very good opportunity for spread in lead & zinc.

For gold, bull & bear spread gap is around rs. 140 to 80/70.

Same way you can find the spread gap for other commodities also. Continues study and watch will help you to understand the spread gaps for different commodities.

If anyone can have it live for intraday then it will be a very good opportunity to do & apply spread.


Regards,

iguru

sir its very nice . Very useful for new traders. I like to thanks

 

[profit13]

great great great!!!!!!!!

 

[iGuru]

hi iguru,

i want to ask - when to enter in c/oil spread and wats the strategy.

can pls provide me the excel for the same.

Hi Naresh,

As I already mentioned in article that please ignore the spread trading in Crude Oil (it will be very risky to do spread trading).

So, personally I will suggest you be out of Crude Oil for Spread trading.

 

[aryabhatta]

iguru can u please tell us which broker you are using since it seems u are getting the benefit of the reduced margin in spread right from day 1?

Some brokers give you the benefit only from day 2 and some dont give any benefit at all, they want u to give full positional margin per commodity no matter if u have spread positions

 

[iGuru]

iguru can u please tell us which broker you are using since it seems u are getting the benefit of the reduced margin in spread right from day 1?

Some brokers give you the benefit only from day 2 and some dont give any benefit at all, they want u to give full positional margin per commodity no matter if u have spread positions

Hi,

I have an account with MK Commodities. (they provide 2-3 times for intraday)

 

[balaj78]

Hi,

I have an account with MK Commodities. (they provide 2-3 times for intraday)

can we take jan lead ,zinc spread .spread is about rs 6.4