Calendar spreads, or time spreads, describe the price differential – or spread – that may arise between differently dated futures contracts. For example, the price difference between contracts for first- and second-month light, sweet crude offered on Nymex. Time spreads can be mitigated by purchasing options on the difference between average annual prices. In effect, such options provide protection against a reshaping of the forward price curve.
The term is also used for trading in which the parties buy a certain number of futures contracts for a specific month and simultaneously sell the same number of futures contracts for a different month.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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