Closing the Gap - Futures Edition

Gold Futures Calendars

| Aug 5, 2016
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    Closing the Gap - Futures Edition

    Gold Futures Calendars

    Aug 5, 2016

    Gold has experienced a rally of more than $300 per ounce since the start of the year. That’s more than $30,000 per Futures contract (100 oz.). The nominal amount of the contract is in the range of $135,000 and the margin is fairly steep, leading to a Buying Power Reduction (BPR) of (currently) $6600. That’s a lot for many traders but the Gold trade has been good, with nice swings and two way action. Is there a way we can play the Gold market with less BPR? Pete Mulmat, our Futures expert, joins the guys to talk about Calendar Futures Spreads and offer some trade ideas including laying out one that includes a Theta (time decay) component.

    The spot gold price is the Gold price for immediate settlement. It is the reference price for gold all over the world. Gold Futures will follow the price closely with the difference based upon the finance costs for the purchase and the cost of carry. Currently the market is in Contango and the spread between December and February has widened making the Contango steeper. Traders may be looking to short the rally and the recent widening in the spread. Pete provided charts of the Gold Futures, the Contango, multiple Futures contract months together and the spread between December 2016 and February 2017.

    Pete laid out his trade of long 10 December Futures and short 10 February Futures. A table included the symbols, prices, spread difference, Deltas, spread difference and BPR of $1760 (for all 10 spreads). The trade also had a Theta component in which Pete was selling one $1320 Put on the October Futures. Keep in mind that when trading Futures Options the month of the option will always go against the same month in the Futures, or if there is none for the next closest month. The short Put brought in a credit of 13.50 ($1350) but increased the BPR by another $4447. Movements in the “forward” or calendar curve can present interesting trade opportunities with a high Return on Capital (ROC) and correspondingly low BPR.

    Watch this segment of Closing the Gap - Futures Edition with Tom Sosnoff, Tony Battista and our in house Futures expert Pete Mulmat for the key takeaways, a better understanding of the Gold market and Gold Futures Calendar Spreads and a trade idea you may want to put to use.

    This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.

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