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EdgeFutures8 min read

Calendar Spreads: Trading the Curve Instead of the Price

Long one expiry, short another. The directional risk mostly cancels and what remains is the relationship.

86%
automatable
Medium
ongoing effort
Edge
angle

What is left after the cancellation

Two contracts on the same underlying share most of their price movement. Trading the difference isolates changes in the term structure — storage costs, seasonal demand, expectations of supply — while removing most of the outright direction.

Why margin treats it kindly

Exchanges recognise the offset and charge substantially less margin for a spread than for two outright positions. The same capital therefore supports more of these, which is precisely why the returns per unit of risk look attractive and why the leverage available is dangerous.

The failure mode

Spreads are quiet until they are not. A supply shock can move the front contract independently of the back, and a position sized on the assumption of quiet behaviour becomes an outright position at the moment of maximum volatility.

Educational, not directive. This is analysis of how a market behaves, not a recommendation to act in it. Strategy detail with conviction scoring and live sample sizes lives in the vault.
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