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Posted by nickravo@gmail.com on May 7, 2007, 10:07 pm
I generally don't do spreads, but I recent had some ES short options I
sold go in the money and I took the contracts rather than rolling out
or closing the trade. So, I had these 10 short ES futures. I figured
while I figure out what my next moves in the portfolio would be, I'd
offset them by going long 10 ES contracts in September, just to cover
my ass. (I also write a few OTM puts and calls to scrape some premium
while I pondered my next move.) I noticed, though, that every day I
was receiving a $50 credit for my offsetting ES contracts, almost like
a carry trade. Made me wonder: Is this a low-risk trade, short front
month, long three months out, watch the spread narrow as the front
month expiration nears? I assume the spread can widen and I'll pay $50
a day, but under what circumstances and conditions, generally? Also,
how much margin am I eating with a spread like this?
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