Futures Calendar Spread: how the position works
Long one delivery month of a product and short another month of the same product. It isolates the shape of the forward curve — contango or backwardation — from its level, so it profits from the curve steepening or flattening while direction is largely irrelevant. It is the single most common futures spread, and every roll of a long-dated position is one whether the trader thinks of it that way or not.
- Market view
- Term structure — non-directional
- Opened for
- Margin
- Maximum profit
- Bounded by how far the calendar differential can move. In storable commodities the carry cost — storage, insurance and financing — caps contango, because beyond it physical arbitrage becomes profitable.
- Maximum loss
- Bounded by the same differential in the other direction, and that direction has no equivalent cap: backwardation can widen without limit when physical supply is short.
- Breakeven
- The differential at entry, adjusted for costs.
How it is built
- Buy 1 contract in the near (or far) month
- Sell 1 contract in the other month of the same product
All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.
Before expiry: the Greeks
Delta-neutral to the outright price, exposed to the slope of the curve. The asymmetry above is the thing to hold on to: contango is limited by arbitrage and backwardation is not, so the risk in a calendar spread is genuinely one-sided in most physical markets.
When to use it
To express a view on storage, carry or seasonal demand, or to roll an existing position from an expiring month into the next one. Term structure is also the cleanest read on physical tightness in commodities, which is why these spreads are watched as an indicator as much as traded.
What goes wrong
- Squeezes. A short near-month leg in a physically delivered market during a supply shortage is the classic route to an unbounded loss.
- Seasonality that is well known is already in the price; trading the calendar on the pattern alone means paying for information everyone has.
- Delivery and first notice dates arrive before expiry, and holding a physically deliverable near leg past them creates an obligation, not a position.
A worked example
Long 1 crude oil (CL) December at 78.40, short 1 crude oil June at 80.10. Multiplier $1,000 per dollar.
- Spread at entry
- −1.70 (December minus June), a contango market
- Value of a $0.01 change in the spread
- $10
- Profit if the spread moves to −0.70
- $1,000
- Loss if the spread widens to −2.70
- $1,000
- Structural cap on contango
- Storage plus financing plus insurance for the period
Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these. Crude is physically delivered: check first notice dates before holding the near leg.
Common questions
What do contango and backwardation mean?
Contango is later months priced above nearer ones, the normal state for a storable commodity where carry costs money. Backwardation is the reverse, and it signals that having the physical goods now is worth paying for — usually a sign of scarcity.
Related strategies
- Futures SpreadRelative value — non-directional
- Futures Inter-Commodity SpreadRelative value — processing or substitution margin
- Futures Basis TradeArbitrage — carry capture
- Calendar SpreadNeutral — long volatility of time
Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.