Calendar Spreads in Futures

A calendar spread in futures, also called an intra commodity or time spread, is long one contract month and short another month of the same product. Its value depends on the shape of the futures curve, not on the overall price level. Calendar spreads let traders bet on tightening or loosening supply, on seasonal patterns or on changes in carry, with lower risk and margin than outright positions. Options traders use "calendar spread" for a different trade across expiries, covered in Calendar Spreads.

Bull and bear spreads#

The names come from storable commodities: when supplies tighten (bullish), nearby prices usually rise faster than deferred prices. See Backwardation and Contango.

What moves calendar spreads#

• Inventories: low stocks push near months up relative to far months. See Storage and Inventories.
• Storage costs and financing: set the maximum contango, often called "full carry".
• Seasonality: harvests, heating and driving seasons. See Seasonality in Commodities.
• Supply shocks: disruptions mainly affect near months.
• Roll flows: large funds rolling positions can pressure specific spreads.

Full carry#

For a storable commodity, a calendar spread cannot stay in contango beyond the cost of storing and financing the commodity for long, because traders would buy the near month, store the commodity and deliver into the far month. That limit is full carry. Contango near full carry suggests ample supply; spreads far from full carry or in backwardation suggest tightness. See Cash-and-Carry Arbitrage.

Worked example#

Seasonal calendar spreads#

Some markets have strong seasonal spread patterns:

The natural gas March April spread earned its nickname after large losses at funds such as Amaranth Advisors in 2006. See Amaranth Advisors and Natural Gas.

Calendar spreads in financial futures#

• Equity index futures: the spread reflects interest rates minus dividends between expiries; it is mainly traded during rolls. See Rolling Futures Contracts.
• Interest rate futures (SOFR): calendar spreads express views on the timing of central bank rate changes.
• VIX futures: calendar spreads trade the volatility term structure. See Term Structure Trading.

Margin and risk#

Calendar spreads typically need much lower margin than outright positions, but risks remain:

• Spreads can move violently near expiry or in supply shocks.
• The near leg expires first; plan rolls and first notice day. See First Notice Day and Last Trading Day.
• Liquidity in distant months can be thin.

Frequently asked questions#

What is a calendar spread in futures?#

A position that is long one contract month and short another month of the same futures product, profiting from changes in the price difference between them.

What is a bull spread in commodities?#

Long the near month and short a deferred month, which profits if near term prices rise relative to later prices, usually when supply tightens.

Why are calendar spreads less risky than outright futures?#

Because the two legs usually move in the same direction, offsetting much of the price risk, though the spread itself can still move sharply.

Next, learn the refining margin spread in Crack Spreads.