The I'm sure there's a name for this spread and margins...

Discussion in 'Commodity Futures' started by jackinv, May 16, 2010.

  1. jackinv


    This isn't really a metals question as much as it's a futures question but I'll use metals to illustrate the point. Alright so if I want to limit my leverage by simultaneously buying 1 Gold contract and shorting 1 E-mini contract in the same month effectively bringing my Leverage to 67 will my margin requirements step down with that? Particularly overnight.

    Similar situation lets say I buy 1 gold contract and buying a put with say a -.3 delta will my overnight margin be approximately the same as it would be above ie scaling down to meet the risk?
  2. bone

    bone ET Sponsor

    LME and Comex do not publish SPAN margin for intramarket spreads, so no can do. For that matter not many futures exchanges do. That makes it difficult to carry overnight, but should not discourage you from spreading intramarket. I do it all the time, but there is too much intraday cointegration in that particular combination you mention for my taste - go ahead and scalp one based on the market action of the other, but an actual spread is trouble. Besides, there are lots of better spreads than that particular one to direct your time and resources at.

    I used to get margin credit for Natural Gas Swaps versus Financial Power, but that was more a function of Man Financial wanting my business than the exchange.
  3. 1) ?....You're "long" a 1-lot of 100-ounce gold versus being "short" a 1-lot of kilogram, ~33 ounce, (e-Mini gold) producing a net-exposure of being long ~67 ounces?....Yes? Your margin may be reduced or it could remain at the level for the 100-ounce outright contract.
    2) It may be "simpler and neater" just to buy a 2-lot of kilo-gold instead.
    3) It may be "better" to trade call options instead of synthetic combos. :cool:
  4. jackinv


    Yes you're right about buying 2 e-minis instead. but however if you bought 2 standard gold and 1 e-mini making 167 it'd be cheaper than buying 5 e-minis

    True, trading call options outright may be more preferable though it would take considerable money to buy one that's moving 60-70% of the futures contract would still be about the same amount of money as it would be keeping the outright overnight. I suppose if I want to hold overnight and try to catch a move I'll have to simply hold the e-mini. Anyhow I was just curious if they took those hedges into account. Thanks.