Try to Spread Trade Them…

08/12/2008 12:00 am EST

Focus: STRATEGIES

John Netto

Author, The Global Macro Edge

So many of Wall Street pundits are always being asked which way the market is going and many will confess both openly and privately that this is nearly impossible to say. However, understanding and profiting from inter-market relationships, or spreads, can yield fruitful results, without necessarily having the same volatility of the underlying market. There are actually more spreads between these markets than there are markets themselves, thereby giving you more flexibility and choices in finding opportunities. The most common one that comes to mind is the NOB spread, so named based on the relationship between the ten year notes (NO) and the thirty year treasury bonds (B). The spread can be charted and is commonly traded by proprietary traders and large institutions. Very little about these spreads is mentioned in the mainstream media but entire proprietary trading shops and funds specialize in these types of relationships.

We will spend this week discussing various spreads and how I go about trading them. We will explain butterflies, equity spreads, agriculture spreads, energy spreads, and what chart formations I find the most beneficial.


If you have a question as to the computation of the spread, please e-mail John Netto at jnetto@osoktrading.com .

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