Contract spread strategy
Oct 25, 2024
The profit mode:
It is easy to understand, and it is more intuitive than the previous strategies, that is, to earn the difference between two contracts that expire at different times.
That is, the strategy buyer buys a long-term contract and sells a recent contract at the same time, thus realizing arbitrage.
It should be noted that in spread positions, traders want the value of long positions to increase relative to short positions.
In addition, the expiration dates of the two legs are different. The short-term contract expires first, and the long-term contract expires later. The pricing rule is: spread price = forward contract price–recent contract price.
The buyer's perspective of the strategy is "buy contract spread", that is, buy forward contracts and sell recent contracts at the same time.
The seller's perspective of the strategy is "selling contract spread", that is, selling forward contracts and buying recent contracts.
The transaction details:
This strategy is universal, and it is suitable for all kinds of market. Assuming that the buying delivery or perpetual contract is leg 1 and the selling equivalent contract with different maturity dates is leg 2, the basic rules to be followed in the transaction are as follows:
1) The number of legs = 2, that is, this strategy has only two legs.
2) Trading instruments = delivery or perpetuity
3) Number of legs 1 = Number of legs 2
4) Maturity date of leg 1 ≠ Maturity date of leg 2, that is, the maturity dates of the two legs are different, and there is no expiration date for eternity.
5) the trading direction of leg 1 ≠ the trading direction of leg 2, that is, the trading directions of leg 1 and leg 2 are opposite, one is to buy and the other is to sell.
6) Target assets of leg 1 = Target assets of leg 2
Tip 1: About the net strategic price.
Net strategic price = leg buying price–leg selling price
Tip 2: About two types of contract spreads.
Perpetual vs delivery: One leg is a perpetual contract.
Delivery vs delivery: both legs are delivery contracts.
Tip 3: About the income curve.
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