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Derivatives | FEB 1997
Trading Soybean Spreads by Scott W. Barrie
Trading Soybean Spreads by Scott W. Barrie Here are the basics of trading a soybean commodity spread using a seasonal strategy. The price relationship between two or more given commodity contracts is known as a spread. Spread trading is the purchase of one commodity contract and the simultaneous sale of another, related, futures contract. The price difference can change, and if it trends in the correct direction, the change in the relationship of the prices will be profitable. There are two basic types of spreads: intercommodity and intracommodity spreads. An intercommodity spread is the purchase of a given commodity and the simultaneous sale of another related but different commodity. Examples of common intercommodity spreads are: the Treasury notes–Treasury bond spread, called the NOB spread; the corn–wheat spread; the T-bill–Eurodollar spread, called the TED spread, and the live cattle–feeder cattle spread. Trading intercommodity spreads involves speculation on the relationship between related but different markets.
by Scott W. Barrie
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