I have never used trend-following strategies on intra or intermarket spreads but I know a lot of people are. Actually sometimes my seasonal trades are in fact trend-following. We enter for different reasons but we all end up with the same trades...
I got it, thank you TraDaTor and as a seasoned trader do you have an idea on how large that spread between the two prices of different crops can be (I mean in the past few years) ?
It was the year of the food riots. Minneapolis Wheat spreads between March and May went backwardated +700( and it wasn't intercrop ). The outright market was opening limit up for 2 weeks or so. Plenty of people were caught short and had to exit their positions using synthetics via options.
Cant think at which IV. Does it make you to pay some protection using far OTM options when dealing a spread on futures ?
When wheat price are high, the mean reversion is done through the inter-harvest period (May to July). Being short May, Long Jul is highly correlated to short outright. (it's also very similar of shorting a call...) I advised not to be short this spread currently and not to trade that without understanding inter-harvest.
I meant far OTM puts for the long leg and far OTM calls for the short one (it could be vertical spreads).
No. I don't use such protections. For instruments that usually explode when they invert( Robusta ), I put a hard stop on the calendar spread. By the way, you can trade calendar spread options on CBOT, some are fairly liquid I think.