Intermarket Spreads
Chapters in this video
- 0:00 The puzzle: trading a gap between two different things
- 0:55 Formal definition and the same-delivery-month rule
- 1:27 How the long-short plumbing isolates product relationships
- 2:04 Related grains and Fiona the farmer's planting choices
- 2:36 The soybean crush: raw beans versus processed output
- 3:33 The reverse crush: flipping every leg
- 3:56 Why sector crashes cancel out and only the gap matters
- 4:45 Intermarket versus carrying charge spread showdown
- 5:29 The storage-cost trap and what really drives each gap
- 6:17 Rapid-fire exam recap
What this video covers
- The formal definition of an intermarket spread: long one commodity, short a different but related commodity, usually the same delivery month
- Why the same delivery month isolates the product-to-product relationship and eliminates calendar effects
- Standard examples including related-grain spreads (soybean-corn, wheat-corn) and the processing margin captured by the soybean crush
- How to construct the reverse crush from the standard crush by flipping all legs
- Why broad sector moves largely cancel out, leaving exposure only to the change in the gap between the two products
- The single most dangerous exam pitfall: defaulting to different delivery months when you see the word "spread"
- Why cost of carry (storage, insurance, interest) drives a carrying charge spread gap but is the completely wrong driver for an intermarket spread gap
Read the full lesson, free
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