Advanced Futures Trading Strategies - Part 5: Relative Value: Spreads, Triplets, and Calendar Trades

This episode introduces relative value (RV) strategies, which involve forecasting the price movement of one asset relative to another, rather than predicting individual asset prices. It categorizes these strategies by the type of assets (across instruments or different expiries of the same instrument) and the number of markets included (spread trades with two markets or triplet trades with three). The text then explores spread instruments, explaining how they are created by taking a long position in one instrument and a short position in a related one, and detailing calculations for their price, risk, position sizing, and costs. It also discusses cross instrument triplets, an extension of spread trading involving three instruments, and calendar trading strategies, which focus on relative value within different expiries of the same instrument. Throughout, the text highlights the increased leverage, costs, and tail risk associated with RV strategies compared to directional trading, while also noting their potential for diversification within a portfolio