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Research Paper On Calendar Spread Strategies

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Spread trading is a trading strategy which trades on the spread between the two contracts. The contracts can be for the same or different commodity, same or different contract maturity, and same or different exchanges \cite[pp.~1-24]{schap2005complete}. A calendar spread is one of these spread strategies where the investor utilises the spread between the two contracts with a different delivery date, but the same underlying commodity. The performance of the calendar spread strategy is compared with the long future contract and spot position strategies. The commodity benchmark index is also introduced which provides the comparison of the performance of the three strategies against the commodity index.

\subsubsection{Calendar Spreads}
A calendar spread or the intra-market spread is a portfolio strategy where two future contracts are simultaneously bought and sold for the same asset, but with different expiration dates \cite[pp.~63-77]{butterworth2002inter,kawaller2002calendar,schap2005complete}. Calendar spread strategies are naturally a fully hedged strategy. This characteristic of the strategy has attracted financial investors towards calendar spreads trading. The increased interest of …show more content…

Two calendar spread strategies are considered which are constructed by using four future contracts. The contract one is defined as the contract for the commodity for the earliest delivery date. The contract two to four are defined as contracts for successive delivery months for the same commodity \cite{NYMEX}. So Spread(4,2) is constructed by selling the contract two and buying the contract four. The Spread(3,1) is constructed by selling the contract one and buying the contract three. It is assumed in the thesis that the investor purchased the calendar spread strategy which implies that the investor sold the nearby future contract and bought the deferred future contract of the same

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