This is a sample entry from Brian Cullen’s email newsletter, The Cullen Outlook.
August / December NATURAL GAS spread:
This is a popular seasonal spread that is done using various months. I will be using August vs. December. Some choose to use October vs. November, the thought process is the same. SELL front month … BUY back month.
As the summer months start to heat up, suppliers begin to liquidate previous held storage (front month eases) while at the same time begin to accumulate supplies for the upcoming months of winter (back month appreciates).
- SELLING the AUGUST contract
- BUYING the DECEMBER contract
Premium of -0.590 to the BUY side (GTC) … last trade -0.626
- Risk will be -0.530 level (STOP ON CLOSE) … ($600.00)
- OBJ will be -0.790 level (LIMIT ORDER) … $2,000.00
Initial margin for this spread is $1,080.000
***Initial margin on this spread is $810.00***
It may not be possible to limit losses to the exact loss limit depending upon market conditions and the possibility of limit moves.
Have a look:
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