Carrying Charge Spreads
Chapters in this video
- 0:00 Why Trey the Trader takes opposite positions in May and July corn
- 0:56 The carrying charge spread definition and its four exam names
- 2:17 The cost of carry: storage, insurance, and interest
- 3:35 The ceiling at full carry and arbitrage mechanics
- 4:52 The missing floor: no limit to narrowing or inverting
- 6:10 Rapid-fire exam recap
What this video covers
- The four interchangeable names for a carrying charge spread: intra-market, intra-commodity, inter-delivery, and calendar spread
- Why both legs being the same commodity neutralizes outright price risk and leaves only gap exposure
- The three components of cost of carry: storage, insurance, and interest
- Why the deferred month trades over the nearby in a normal (carrying-charge) market
- The exam trap of nearby-over-deferred in a normal market: that configuration is an inverted market, not normal
- Full carry as the arbitrage-driven ceiling on how wide the gap can get, and why markets rarely trade all the way to true full carry
- The asymmetric floor: why narrowing and inverting has no limit, and the infinite risk to a spreader betting on widening in a supply squeeze
Read the full lesson, free
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