[The Trader Mentoring Program starts March 1.]
So now that the trade is on, let’s see how the market moves in the respective contracts affect your trading equity. Here’s a chart of the spread through Wednesday’s close courtesy of FutureSource.com.
Short May Cotton
Long December Cotton
You can see how the May and December contracts traded on their own in the calendar strip above. One was up, the other was down. In this case, both moved in a favorable direction as far as the spread is concerned, but it doesn’t always work out that way…so don’t get your hopes up that this happens all the time because it does not.
You can derive the same spread chart at FutureSource, which I advise you learn to do.
Go to “Get A Chart” and enter the following syntax where it says “Symbol or Contract.” Then click the green button “Get Chart.” (There’s a graph below that shows you what to put where.)
= (‘CT Z1’ – ‘CT K1’)
There are spaces between the contract symbol and the expiration months in the equation above.
CT = Cotton
Z1 = December 2011
K1 = May 2011
It should look like this:
The spread widened approximately 5 points (3.70 + 1.36) which equates to $2,500 per spread. The margin for the spread is $2,800. I wouldn’t get hung up on making the big gains. I would, however, focus on how much the margin and the volatility mean to your account. You get paid to manage your downside and play good defense.
I need to get writing. Apparently I have a book coming out.