Calendar Spread
A calendar spread is a position that takes opposite exposure in contracts with different expiration dates on the same or closely related underlying asset.
✦ Key Insight
It is useful for understanding term structure, contango, backwardation, and futures basis.
✕ Common Misconceptions
Spread risk can remain significant and both legs can move sharply during volatile markets.
Detailed Explanation
In Practice
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Arbitrage
Arbitrage is the practice of trying to profit from price differences for the same or closely related asset across markets.
Basis
Basis is the difference between the price of a derivative, such as a futures contract, and the price of its underlying spot asset.
Contango
Contango is a market condition in which futures prices are above the spot price or later-dated contracts trade above nearer-dated contracts.
Backwardation
Backwardation is a market condition in which a futures price is below the current spot price or nearer-dated contracts trade above later-dated contracts.
Derivatives Market
A derivatives market is a venue where contracts derive their value from an underlying asset, rate, index, event, or other reference.