The equity markets are currently in a period of low implied volatility IV , but Crude Oil Futures are still in play. Mike Hart, aka Beef, from our research team, had some ideas about using Futures Calendar Spreads, and the first place to start was with the Futures curve. The futures curve for any commodity shows how the market is pricing it in the future. When trading any commodity make sure you understand the curve.
Crude Oil is currently in contango because storage space is limited, leading to more expensive Crude Oil futures prices. Understanding such factors can be applied to other commodity curves and the Treasury curve. One strategy we can use is that of a Futures Butterfly, a spread using 3 different Futures contracts with 3 different expirations. These Butterflies are not like equity option Butterflies , which are constructed with 3 different strikes in the same expiration.
A Futures Butterfly is constructed using three different months. Mike laid out his trade and the reasoning behind it. It was a Crude Oil Futures Butterfly that was constructed by buying one December contract, selling two December contracts and buying one December contract. The most efficient way to establish the position would be via a Dec16 - Dec17 spread and a Dec17 - Dec18 spread.
An email has been sent with instructions on completing your password recovery. Register today to unlock exclusive access to our groundbreaking research and to receive our daily market insight emails. Beginning of Segment Discussion Trading a Futures Butterfly Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
For more on Crude Oil Spreads see: Splash Into Futures with Pete Mulmat.More...