Commodity Spreads constitute a trading strategy involving the simultaneous purchase and sale of two related commodity contracts, often with differing delivery months or underlying but correlated assets. The objective is to profit from changes in their price difference. In crypto, this concept extends to digital assets exhibiting commodity-like characteristics or their derivatives.
Mechanism
This mechanism typically involves executing two offsetting positions: a long position in one contract and a short position in another. Profit or loss arises from the movement of the spread itself, rather than the absolute price movement of either individual contract. For crypto, this could involve spot-futures spreads or spreads between different tokenized commodities or their derivatives across decentralized finance protocols.
Methodology
The methodology for commodity spreads in a crypto context relies on identifying correlated digital assets or derivatives and analyzing historical price differentials and volatility. Strategies often involve calendar spreads, inter-market spreads, or inter-commodity spreads, with a focus on risk management by capitalizing on anticipated relative price movements. This approach seeks to reduce overall price risk while targeting specific arbitrage or relative value opportunities.
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