Spread Trading: Rapid Fire

What this video covers

• What a spread (also called a straddle in futures) actually is: a long in one contract and a short in a related contract held simultaneously, not two separate directional bets
• How a spread is quoted and filled as a single price differential, not two outright prices, and why this eliminates legging risk (execution risk)
• Why spread margin is lower than the sum of two outright margins, because offsetting legs cut net risk
• The one invariant for spread profit: the long leg must outperform the short leg, rising more or falling less, regardless of outright market direction
• How normal markets (deferred over nearby, from carrying charges: storage, insurance, interest) and inverted markets (nearby over deferred, from supply shortage) set which leg to make long and which short
• Why widening gaps require long the leg expected to gain and short the other, while narrowing gaps in a normal market mean long the nearby and short the deferred
• The exam traps: confusing outright direction with differential profit, "selling the spread and hope" sloppy phrasing, and forgetting that legging in reintroduces execution risk