Commodities - Spread Trading - Strategy & Calculation - Commodities in MARKETS - There are two types of strategies for Spread: Bull Spread & Bear Spread Bull Spread This strategy is applied when ...
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Spread Trading - Strategy & Calculation - Commodities

  1. Spread Trading - Strategy & Calculation - Commodities

    There are two types of strategies for Spread: Bull Spread & Bear Spread

    Bull Spread
    This strategy is applied when the spread gap between the two contracts (Gold Far month contract – Gold Near month contract or Lead Oct contract – Zinc Oct contract) is more or widen.

    Bear Spread
    This strategy is applied when the spread gap between the two contracts (Gold Far month contract – Gold Near month contract or Lead Oct contract – Zinc Oct contract) is less or narrow (gap between the two contract become “Zero” or “negative” figs.)


    Calculation:
    Here, I’m taking the example of spread between the Lead & Zinc (my favourite one):

    First take the historical data for last one month from MCX website (mcxindia.com – Market Data – Bhav Copy – Bhav Copy Commoditywise)

    Then take the spread gap between the closing price of each day (Spread Gap = Lead Closing Price – Zinc Closing Price) for last one month

    Take the "Average" of those spread gap of the closing prices and also the "standard Deviation" of those spread gap of the closing prices for last 20-25 days.

    Now we will have two figs. That is “Average” & “Standard Deviation”.

    Now comes the final part that is the decision making and implementation of Spread strategy:

    Bull Spread Range = Average + Standard Deviation

    If the spread Gap > Bull Spread Range, then we will go for Bull spread strategy. It means we will Sell the far month contract or Lead contract and Buy the near month contract or Zinc contract.

    Bear Spread Range = Average - Standard Deviation

    If the spread Gap < Bear Spread Range, then we will go for Bear spread strategy. It means we will Buy the far month contract or Lead contract and Sell the near month contract or Zinc contract.

    Important point:

    I have attached an Excel file: Spread Analysis – Lead & Zinc for your reference to understand the calculations.

    For calculating the spread gap between the two contracts, I always subtract from Far month to near month contract for spread calculation. If you will change this calculation scenario then your strategy will also change.

    For lead & zinc spread, I found that there Bull & Bear spread gap is around Rs. 2.5 to 0 even to -0.5. Any time if you find a spread gap of Rs. 4 to 5 or Rs. -2 to -3 will be a very good opportunity for spread in Lead & Zinc.

    For Gold, Bull & Bear spread gap is around Rs. 140 to 80/70.

    Same way you can find the spread gap for other commodities also. Continues study and watch will help you to understand the spread gaps for different commodities.

    If anyone can have it live for intraday then it will be a very good opportunity to do & apply spread.

    Spread Analysis - Lead and Zinc.zip

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  2. jay

    I tried your current xls on last mth data for lead and zind spread but whole senerio has changed and now spread gaps were in range of 14 ~ 2 and going by your calculation no trade can be initiated so can you please let me know further what has to be done in such situation

  3. Quote Originally Posted by jay View Post
    I tried your current xls on last mth data for lead and zind spread but whole senerio has changed and now spread gaps were in range of 14 ~ 2 and going by your calculation no trade can be initiated so can you please let me know further what has to be done in such situation
    Bull Spread Range = Average + Standard Deviation

    If the spread Gap > Bull Spread Range, then we will go for Bull spread strategy. It means we will Sell the far month contract or Lead contract and Buy the near month contract or Zinc contract.

    Bear Spread Range = Average - Standard Deviation

    If the spread Gap < Bear Spread Range, then we will go for Bear spread strategy. It means we will Buy the far month contract or Lead contract and Sell the near month contract or Zinc contract.

    Mostly, you should see either of these situations ... If not, its advised not to execute this strategy.

    Cheers!

  4. Hi Mani....I need help...R u there?

  5. Quote Originally Posted by sivgates View Post
    Hi Mani....I need help...R u there?
    Hi Siv, Whats your query?

  6. Sir,
    I want to trade calender spread only. can u guide me on gold and silver sir?

  7. Quote Originally Posted by vihar2004 View Post
    Sir,
    I want to trade calender spread only. can u guide me on gold and silver sir?
    Vihar, I haven't tried this strategy ... Go long on Gold when Gold RSI is below 40 ... That works well

  8. Hey mani could you plz help me in lead zinc spread it is 16~16.5

  9. Quote Originally Posted by anurag View Post
    Hey mani could you plz help me in lead zinc spread it is 16~16.5
    Hi Anurag, I haven't tried this strategy myself ... Kindly just try to follow instructions ...







  10. what is calender spread ??

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