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How to trade the new single stock future Part 5

Perhaps the most interesting, and potentially profitable, tool in futures trading is the spread. Yet in spite of its potential and validity as a trading method, it is not understood by most traders and therefore not generally employed by the trading public. On the other hand, professional traders in the futures and options markets use spreads frequently as vehicles to profitable trading. | I CHAPTER NINE Spread Trading in Single Stock Futures Perhaps the most interesting and potentially profitable tool in futures trading is the spread. Yet in spite of its potential and validity as a trading method it is not understood by most traders and therefore not generally employed by the trading public. On the other hand professional traders in the futures and options markets use spreads frequently as vehicles to profitable trading. Why is it that spreads are so poorly understood by the public The answer here as in most cases is a combination of ignorance and fear. One reason for this problem is that a spread involves two opposite positions in the same market or in related markets at the same time. This can be confusing especially to the new trader. It seems paradoxical that with the wealth of information available today about trading systems and methods there should exist such a weak spot in market knowledge. I suggest that even futures traders who are familiar with the use of spreads not skip this chapter as I offer some important points about the use of spreads in SSFs points that may serve you well in the short as well as the long run. 95 96 How to Trade the New Single Stock Futures I What Is a Spread and How Does It Work A spread is precisely what its name implies it involves the purchase of one contract and sale of another contract in different months or in the same or different futures markets most often simultaneously in order to profit from the differential strength or weakness between the two contracts or the two different markets. Putting it simply when you enter a spread you go long and short either in different contract months of the same market or SSF or in two different markets or SSFs . As noted earlier when you enter a spread you buy and sell at the same time however you do so in different contract months of the same market or SSF or in the same contract month of two different but related markets or SSFs. By being long and short at the same .