Calendar Spread - where is money?

Hi Spread Traders,

My wrong question:

For last several days – I am thinking, and more thinking, and try to figure our where is money in calendar spread.

Far month is always current price+carry charges (say $2 more). If there would be any change in far month verses current that would be settled back by the close of day. So, differential will always be pushed back to same old original difference [on which one would have entered in to spread position at first place].

Even if one stays in calendar spread for 5 months, where/why difference will increase beyond carry charges that will give you ~ $1000 profit.

For a minute, let us assume there would be a bigger differential – would it be within FND/LND? How long practically this differential sustains?

I know Andy Gordon has shown profit, so MRCI – but somehow I am missing the point.

Again, I am referring to calendar spread of same commodity.

Clarify please.

Thanks.

 

I am not sure what you are really asking but spreads are not just made up of carrying charges, they also represent the real supply and demand by the end users in a paticular market. In extremely bearish markets the spread might trade at near or full carry. In very bullish markets the spread might actually invert.

The way you make money off of spreads is evaluating what the current supply demand picture is then forcasting what the future supply demand picture will be. Then put on the spread. If you can do this correctly then profits will come pouring in.

 

The point is that forces act on things differently at different points in time.

Differently now, differently later. The way you increase your odds is to find a pattern that has worked fifteen years in a row and see if you can ride it. If it happens to be a calendar spread look for tremendous returns on margin from a slight move. If you need more money, put on more spreads.