1、Chapter 7 Hedging with Spreads1What is hedging? When a businessperson uses the futures market to protect against adverse price movements, the process is called hedging.Hedging involves taking a position in the futures market that is opposite to the position held in the cash or spot market.2 If a bus

2、inessperson buys a commodity in the cash market, he or she would then hedge that position by selling an equivalent quantity in the futures market.Selling Hedge3The buying hedge is used by a businessperson who anticipates buying a commodity at a future date and wants protection from a possible price

3、increase. This person is said to be short the cash market and so would take a long position in the futures market (be a buyer). Buying Hedge4 Hedging not only protects against the possible losses from adverse price movement; it also takes away the possibility of windfall profits that can accrue as t

4、he result of favorable price moves. Conclusion:5The Basis 基差 The difference between the futures price and the spot price is known as the basis.6 _ Date Cash March Futures Basis November $5.30/bushel $5.47/bushel $-0.17 February $5.10/bushel $5.22/bushel $-0.12 Gain or Loss $-0.20 $-0.15 Base Example

5、 7SPREADS AND STRADDLES(套利和對沖)A spread is simply the simultaneous buying of one contract and selling of another.The price difference between two related markets or commodities. The purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; 8 A sp

6、read can also apply to options. It involves buying one futures contract and selling another futures contract. The purpose is to profit from an unexpected change in the relationship between the purchase price of one and the selling price of the other. SPREADS AND STRADDLES套利和對沖9 Because gains and los

7、ses occur only as the result of a change in the price difference rather than as a result of a change in the overall level of futures prices - spreads are often considered more conservative and less risky than having an outright long or short futures position .SPREADS AND STRADDLES套利和對沖10 1. Intra-co

8、mmodity Spread There are two types of spreads 2. Intercommodity Spread11 TRADING SPREADS Profits in spread trading are made in one of three ways12 1. Spreads are often very reliable from the standpoint of seasonality. 2. Spread margins are generally very low or even zero. 3. Some (but not all) sprea

9、ds are lower in risk than either long or short positions. 4. There are a number of good timing indicators for entering and exiting spreads.Why Trade Spreads?13Many intracommodity spreads have extremely low margins.In other words, there is no specific margin on these spreads.Margin Requirements on Sp

10、reads14A common but not necessarily wise procedure for spread entry and exit is the legging in and legging out procedure. As the term implies, this technique involves entering a spread one side, or leg, at a time or exiting a spread one side, or leg, at a time. Legging In and Legging Out15This is a technique that can not only complicate matters but also increase the risk of losses.Legging In and Legging Out16A Market Order Is Advisable