Written by Upstox Desk
5 min read | Updated on July 31, 2025, 18:25 IST
Types of spreads
Calendar Spread vs Commodity spread
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A futures spread is a combination of two opposite transactions. It basically refers to taking a long position in one futures contract and a short position in another. The opposite positions can differ in expiries or even underlying.
In a calendar spread, both the futures contracts have the same underlying, however their expiries are different. It is deployed by taking a long position in one futures contract and simultaneously a short position in another futures contract.
Smriti is a trader, according to her analysis now is a good time to deploy a calendar spread in TCS futures. She takes a long position in near month TCS futures and short position in next month TCS futures.
TCS future contracts |
Long position with near month expiry (December) |
Short position with next month expiry (January) |
Now she needs to pay a margin to deploy this strategy. However as she is using a calendar spread she has to pay a lesser margin in comparison, than if she were to deploy this as 2 separate orders.
The spread is used to benefit from the price discrepancies in two futures contracts that have the same underlying although different expiries.
In a commodity spread, two future contracts having the same expiry but different underlyings are considered. Here, a long position is taken in one commodity futures contract and simultaneously a short position is taken in another commodity futures contract.
Not any random permutation and combinations can be used for a commodity spread. Here are a few criterias based on which these decisions are taken.
Thus, as cornmeal and soya meal are substitutes, they can be used for a commodity spread.
Let's understand this with the help of the fuels used in the energy sector: The two commodities are crude oil and natural gas.
Point | Calendar Spread | Commodity Spread |
Expiry | Both the contracts have different expiries. | Both the contracts have the same expiries. |
Underlying of both positions | The positions (both) are on the same underlying. | The positions are on separate underlyings. |
Underlyings on which this strategy can be used | Stocks, indices, commodities, interest rates etc. | Only on commodities. |
Variance | The variance is the same for both the contracts. | The variance is different for both the contracts. |
Volatility Hedge | Both the contracts are perfectly hedged. | The contracts are not perfectly hedged and thus there is a discrepancy. |
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Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
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