Spreading - Summary And Review
Spreading is a risk reduction and control strategy similar to hedging, except that the basis is the difference between nearby and more distant-future prices, rather than a cash and a futures price. Traders and speculators alike employ spreads in the pursuit of their respective goals. Bull spreads and bear spreads are created in expectation of rising and fall markets, respectively.
- Which is NOT TRUE of an intra-market spread?
- It is also called a calendar spread.
- It is also called an intra-delivery spread.
- It presents an arbitrage opportunity between two exchanges.
- It can be either a bull spread or a bear spread.
- It is March and you sell a May corn contract for $2.50/bushel and buy a July corn contract for $2.70/bushel. Which statement is TRUE?
- The basis is $0.20/bushel and this is a bull spread.
- The basis is -$0.20/bushel and this is a bull spread.
- The basis is $0.20/bushel and this is a bear spread.
- The basis is -$0.20/bushel and this is a bear spread.
- It is August, AIG stock is trading for $57/share and an investor buys a contract to deliver AIG shares in October for $60 and sells another contract to deliver AIG shares in November for $64. A month later, the spot price has reached $59, the October price is still $60, and the November price is now $65. The basis for the spread as of September is:
- Why are spread margins generally lower than uncovered margins?
- Investors taking spread positions are generally more creditworthy.
- Spreads increase the volume traded on the exchange.
- Spreads are inherently less risky.
- The question proceeds from a false premise; spread margins are not lower than uncovered margins.
- In a rising market, a reverse crush spread works to the disadvantage of
- Both a. and b.
- Neither a. nor b.
- Speculators are long the input and short the output.
- Spreading is a more effective hedge than a simple long or short position.
- A spread order
- Must be entered as two separate trades.
- May be entered as one order that has two components.
- Must be entered as one combined trade.
- May be entered as two separate orders.
- Both b and d.
- The margin requirements on a reverse crush spread are lower.
- The objective of futures markets is to
- Create a standardized market that reduces counterparty risk.
- Reduces price risk.
- Allows for bespoke contract design
- All of the above.
Options & FuturesIn a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
Options & FuturesEquity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
Fundamental AnalysisLearn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
Stock AnalysisLearn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
Options & FuturesFutures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
Chart AdvisorThe charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
Fundamental AnalysisRead about the changing economics of the oil business. Discover how oil companies are using technology to increase the efficiency of old wells.
Investing BasicsBecoming a self-taught financial expert may not be as daunting of a task as it seems.
Options & FuturesIt’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
FAPassing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
A derivative that confers the right, but not the obligation, ...
A derivative contract through which two parties exchange financial ...
Making an investment to reduce the risk of adverse price movements ...
The movement of the price of a futures contract towards the spot ...
Crude oil is a naturally occurring, unrefined petroleum product ...
An auction market in which participants buy and sell commodity/future ...
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>