Intermarket Spreads

An intermarket spread consists of a long position in one market and a short position in another market trading the same or a closely related commodity. An example is light sweet crude oil futures at the New York Mercantile Exchange (CME Group) and Brent crude oil futures on the ICE Futures Europe or wheat contracts traded on the Chicago Board of Trade (CME Group) and the Kansas City Board of Trade. Intermarket spreads often involve different grades, locations or specifications of a commodity, thereby introducing additional basis risk.

Also included among intermarket spreads are commodity-products spreads, which comprise a long position in a commodity against short positions of an equivalent amount of the products derived from the commodity, or vice versa. Examples are the soybean crush and the petroleum crack spreads. A crush spread involves a long soybean futures position, representing the raw, unprocessed beans, against short positions in soybean meal and soybean oil futures. The petroleum crack spread involves purchasing crude oil futures and selling the products-heating oil and gasoline futures.

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