Stock Market · Futures Trading

Calendar & inter-commodity spreads

Instead of taking a naked directional bet, spread strategies involve simultaneously buying and selling related contracts. The goal is to profit from the change in the RELATIONSHIP between two prices, not the absolute price direction.

Calendar spread (time spread)

Buy near-month futures + sell far-month futures of the SAME underlying.

Or: sell near month + buy far month.

Profit from: the change in the spread between near and far month prices (basis change).

> Calendar spreads are less risky than outright futures because one leg hedges the other. Market crashes hurt both legs similarly.

When calendar spreads make sense

• Expecting basis to widen: near month cheaper than usual relative to far month → buy near, sell far
• Near expiry: near-month futures converge to spot aggressively. If you're long near and short far, the spread narrows profitably.
• Lower margin requirement: exchanges recognise the reduced risk, offering margin benefit (SPAN credit) on hedged positions.

Inter-commodity spread

Simultaneously long one commodity and short a correlated commodity. Profit from the change in their price ratio.

Examples on MCX:

• Gold vs silver spread (gold-silver ratio historically reverts)
• Crude oil vs natural gas

In NSE equities:

• Long Nifty futures + Short Bank Nifty futures (or vice versa) when one is expected to outperform
• Pair trades: long strong sector leader, short weaker competitor

Lower volatility + lower marginthe main attractions of spread trading vs outright positions

Spread trading is more sophisticated than outright speculation. It requires understanding correlations, basis behaviour, and carry costs.

Takeaway. Calendar spreads exploit basis changes between near and far month. Inter-commodity spreads exploit relationship changes between correlated assets. Both reduce directional risk vs outright futures.