Fashioning a Good Old Spread Trade

A futures trade I have been making of late has been going long natural gas (Henry Hub Natural Gas -- NG on the Nymex) and shorting West Texas Intermediate Crude (MINY Light Sweet Crude Oil -- QM on the Nymex). The volatility behind each of these contracts makes a spread trade workable. The spreads are historically large -- and, given the multipliers on the futures contracts, two natural gas contracts equates to about one crude oil contract. As a result, it's easy to trade the spread evenly.

Natural Gas vs. Oil -- Daily Source: View Chart » View in New Window »

The spread currently stands at 25%, which is almost at the extreme for the three-month period, as seen above. But it's not just the wide spread that makes a trade. You have to see something that makes you believe the spread will narrow....569 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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