Spread Trading - Strategy & Calculation

[siva2005]

Hi Rahul,

Natural Gas & Crude Oil doesn't have good correlation (even in fundamentals). so please try to ignore the spread strategy for this.

GURUJI,
good strategy if trade with this strategy we can save capital and control no.of trades.:clap::clapping:
can you post recent lead/zinc excel sheet or advice which month contract data to be taken as near and far.(New contracts are trading)
thanx in advance

 

[ANKPAGR]

Dear i guru

today the spread diff in silver is near 300/- can we take position in siler by selling far month and buying near month silver???????????? Plz reply me soon

 

[mehtaka]

Helo sir,
I saw the spread sheet, and would like to thank for makeing such a wonderful sheet.
Have some query on it.

I have updated the sheet till date, and while doing that, i got some query
(sheet updated by me is below the orange line)

Zinc and lead both have monthly expiry. So which contract we need to trade also, in the spread sheet, in the bear stratergy , u have opened the position on 18th aug 2010...and squared off on 10th sept 2010....so in this case..which expiry we need to trade or else what to do in case of roll over?
as the cost of carry may be higher.

Also what spread range we should look for....for bull and for bear?...as you said in your post that it shoud be 2.5-0...so it means for bull spread should be abv 2.5 and for bear spread should be below 0?
In the excel sheet the first bull spread trade you have made, u have started with the spread range of 4.65 i.e on 02/09/2010, wherease just abv that we can see the spread range is greater than bull spread, (2.5)..


thanks

 

[mehtaka]

Still waiting for Mr. Iguru is solve my query...or any other senior member...

 

[mehtaka]

no reply yet.....

nways..i have an account with RK Global...where they are not providing me with the benifets of spread trading in zinc and lead.
I need to pay individual margin for both the commodities. Is it with all the broking firms?
plz help me out

Also i have prepared the spread sheet in gold...and i am lil confused....would like Iguru or senior to helpme out.
thanks

 

[nac]

no reply yet.....

nways..i have an account with RK Global...where they are not providing me with the benifets of spread trading in zinc and lead.
I need to pay individual margin for both the commodities. Is it with all the broking firms?
plz help me out

One of our member raised this before...

I think he said @ EOD blocked margin for the whole was released and only spread margin was blocked. But to initiate you need to have the whole margin. He is with RKG too... You may find his post in this thread or in the other one...

 

[mehtaka]

One of our member raised this before...

I think he said @ EOD blocked margin for the whole was released and only spread margin was blocked. But to initiate you need to have the whole margin. He is with RKG too... You may find his post in this thread or in the other one...

hey thanks....i will check out today end of the day....

also lead and zinc is having spread more than 5 rs....
so it seems like good time to enter and earn...

 

[mehtaka]

hello,
RKGlobal is not provind wiht the zinc and lead spread benifets. They are saying as both are different commo, margins would be different.
Had checked EOD but they have applied both the commo margin.

 

[nac]

hello,
RKGlobal is not provind wiht the zinc and lead spread benifets. They are saying as both are different commo, margins would be different.
Had checked EOD but they have applied both the commo margin.

^ So sad...

I don't think we can negotiate with RKG...
Better look for a broker who offers such margin...

 

[VBS2010]

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....... I’m 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, I’m 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

Dear Sir,
I am very thankful for such a wonderful strategy. I am trading regularly in GoldM & SilverM but not applying spread strategy.
Can I now apply Calendar spread Strategy (bull spread or bear spread) in GoldM & SilverM?
Sir, I request to you, if you have excel sheet of Gold or Silver, pls forward me. I want to study?

Thanking U. I await to ur quick reply.