V.15:8 (360-365): Trading the Wheat/Corn Spread by Scott W. Barrie

V.15:8 (360-365): Trading the Wheat/Corn Spread by Scott W. Barrie
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Trading The Wheat/Corn Spread: by Scott W. Barrie

Here’s a seasonally and statistically based intermarket spread trade.

Within a short time, every futures trader learns strategies that go beyond the simple long or short position. In riding the learning curve, the novice trader will, sooner or later, add spread trading to his or her arsenal of strategies. Here’s how one particular strategy works, as well as a his-torical review of it.

But first, here are some basic definitions. A spread is simply the price relationship between two or more futures contracts. Futures traders use three basic spread positions: interdelivery (or intramarket) spreads, intermarket spreads, and intercommodity spreads. An interdelivery spread, com-monly referred to as an intramarket spread, is the simulta-neous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same commodity on the same exchange. At one time, this type of spread was called a calendar spread because the position is based on different calendar months, such as buying July corn and selling December corn.

Intermarket spreads, on the other hand, involve the simul-taneous purchase of a given delivery month of a futures contract on one exchange and the simultaneous sale of the same delivery month of the same futures contract on a different exchange. One example would be the purchase of July Chicago Board of Trade (CBOT) wheat and the sale of July Kansas City Board of Trade (KCBT) wheat in the same delivery year.

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