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Question 1 of 10
1. Question
Which of the following statements is false regarding value of spread order in normal market and inverted market?
Correct
Value of spread order in normal market and inverted market
In a normal market, the basis of a spread order will be negative; the longer-term futures price will be higher than the shorter-term one. The expectation of the trader is that the basis will narrow as the contract approaches expiration. In this case, a trader would buy the near-term contract (with the expectation of modestly higher prices) and sell the longer-term contract (with the expectation of lower prices). In an inverted market, the near-term contract price will be higher than the longer- term one, and the basis will be positive. The expectation of the trader is that the basis will widen as price normalizes. The trader would sell the near-term contract (with the expectation of lower prices) and buy the longer-term contract (with the expectation of higher prices).Incorrect
Value of spread order in normal market and inverted market
In a normal market, the basis of a spread order will be negative; the longer-term futures price will be higher than the shorter-term one. The expectation of the trader is that the basis will narrow as the contract approaches expiration. In this case, a trader would buy the near-term contract (with the expectation of modestly higher prices) and sell the longer-term contract (with the expectation of lower prices). In an inverted market, the near-term contract price will be higher than the longer- term one, and the basis will be positive. The expectation of the trader is that the basis will widen as price normalizes. The trader would sell the near-term contract (with the expectation of lower prices) and buy the longer-term contract (with the expectation of higher prices). -
Question 2 of 10
2. Question
Which of the following statements is true regarding commodities used in product spread?
Correct
Commodities used in product spread
The intent of a product spread is to establish opposite positions in a raw material and a derived product. The two primary types of product spreads are as follows:
• crush spread – raw material: soybeans; derived products: soybean oil, soybean meal
• crack spread – raw material: crude oil; derived products: gasoline, heating oil
The spread consists of a long position in the raw material and a short position in the derived products. A reverse spread consists of a long position in the derived products and a short position in the raw materials. The position is created by comparing the derived product yield to the amount of raw materials required to produce that yield. For example, if 10,000 bushels of soybeans yield 5,000 gallons of oil and 3,000 pounds of meal, the contract values will be 10:5:3.Incorrect
Commodities used in product spread
The intent of a product spread is to establish opposite positions in a raw material and a derived product. The two primary types of product spreads are as follows:
• crush spread – raw material: soybeans; derived products: soybean oil, soybean meal
• crack spread – raw material: crude oil; derived products: gasoline, heating oil
The spread consists of a long position in the raw material and a short position in the derived products. A reverse spread consists of a long position in the derived products and a short position in the raw materials. The position is created by comparing the derived product yield to the amount of raw materials required to produce that yield. For example, if 10,000 bushels of soybeans yield 5,000 gallons of oil and 3,000 pounds of meal, the contract values will be 10:5:3. -
Question 3 of 10
3. Question
Which of the following statements is false regarding bull spread and bear spread?
Correct
Bull spread and bear spread
A bull spread and a bear spread are designed to yield a profit in opposing price scenarios. A bull spread consists of a long position in the near futures contract and a short position in the outer futures contract. The trader will benefit when the basis narrows (i.e. the price of the near futures contract increases and/or the price of the outer futures contract decreases). A bear spread has the same structure as a bull spread, but the short and long positions are reversed. A bear spread consists of a short position in the near futures contract and a long position in the outer futures contract. The trader will benefit when the basis widens (i.e. the price of the near futures contract decreases and/or the price of the outer futures contract increases).Incorrect
Bull spread and bear spread
A bull spread and a bear spread are designed to yield a profit in opposing price scenarios. A bull spread consists of a long position in the near futures contract and a short position in the outer futures contract. The trader will benefit when the basis narrows (i.e. the price of the near futures contract increases and/or the price of the outer futures contract decreases). A bear spread has the same structure as a bull spread, but the short and long positions are reversed. A bear spread consists of a short position in the near futures contract and a long position in the outer futures contract. The trader will benefit when the basis widens (i.e. the price of the near futures contract decreases and/or the price of the outer futures contract increases). -
Question 4 of 10
4. Question
Which of the following statements is false regarding bull spread and bear spread?
Correct
Bull spread and bear spread
A bull spread and a bear spread are designed to yield a profit in opposing price scenarios. A bull spread consists of a long position in the near futures contract and a short position in the outer futures contract. The trader will benefit when the basis narrows (i.e. the price of the near futures contract increases and/or the price of the outer futures contract decreases). A bear spread has the same structure as a bull spread, but the short and long positions are reversed. A bear spread consists of a short position in the near futures contract and a long position in the outer futures contract. The trader will benefit when the basis widens (i.e. the price of the near futures contract decreases and/or the price of the outer futures contract increases).Incorrect
Bull spread and bear spread
A bull spread and a bear spread are designed to yield a profit in opposing price scenarios. A bull spread consists of a long position in the near futures contract and a short position in the outer futures contract. The trader will benefit when the basis narrows (i.e. the price of the near futures contract increases and/or the price of the outer futures contract decreases). A bear spread has the same structure as a bull spread, but the short and long positions are reversed. A bear spread consists of a short position in the near futures contract and a long position in the outer futures contract. The trader will benefit when the basis widens (i.e. the price of the near futures contract decreases and/or the price of the outer futures contract increases). -
Question 5 of 10
5. Question
Regarding price expectations for bull spread in normal and inverted markets, which of the following statements is true?
Correct
Price expectations for bull spread in normal and inverted markets
A trader who enters into a bull spread in a normal market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In an inverted market, the bull spread would need to have an opposite structure compared to the one used in a normal market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract).Incorrect
Price expectations for bull spread in normal and inverted markets
A trader who enters into a bull spread in a normal market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In an inverted market, the bull spread would need to have an opposite structure compared to the one used in a normal market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract). -
Question 6 of 10
6. Question
From the statements below regarding price expectations for bear spread in normal and inverted markets, which one seems to be the most appropriate to you?
Correct
Price expectations for bear spread in normal and inverted markets
A trader who enters into a bear spread in an inverted market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In a normal market, the bear spread would need to have an opposite structure compared to the one used in an inverted market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract).Incorrect
Price expectations for bear spread in normal and inverted markets
A trader who enters into a bear spread in an inverted market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In a normal market, the bear spread would need to have an opposite structure compared to the one used in an inverted market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract). -
Question 7 of 10
7. Question
From the statements below regarding price expectations for bear spread in normal and inverted markets, which one seems to be the most appropriate to you?
Correct
Price expectations for bear spread in normal and inverted markets
A trader who enters into a bear spread in an inverted market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In a normal market, the bear spread would need to have an opposite structure compared to the one used in an inverted market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract).Incorrect
Price expectations for bear spread in normal and inverted markets
A trader who enters into a bear spread in an inverted market seeks to benefit from a narrowing of the basis. This occurs when the price of the short leg (the outer contract) declines and/or the price of the long leg (the near contract) increases. In a normal market, the bear spread would need to have an opposite structure compared to the one used in an inverted market. The near contract would be the short leg, and the outer contract would be the long leg. The trader would seek to benefit from a widening basis (i.e. increasing prices for the outer contract and/or decreasing prices for the near contract). -
Question 8 of 10
8. Question
Which of the following statements is true regarding intracommodity and intercommodity?
Correct
Intracommodity and intercommodity
“Intra” refers to a spread in which both legs are for like commodities (such as Sept. soybeans and Dec. soybeans). This type of spread is also known as a calendar spread. An “inter” spread is one in which one leg is for one commodity (such as a long in corn) and the other leg is for a different but related commodity (such as a short in live cattle).Incorrect
Intracommodity and intercommodity
“Intra” refers to a spread in which both legs are for like commodities (such as Sept. soybeans and Dec. soybeans). This type of spread is also known as a calendar spread. An “inter” spread is one in which one leg is for one commodity (such as a long in corn) and the other leg is for a different but related commodity (such as a short in live cattle). -
Question 9 of 10
9. Question
Which of the following statements is false regarding intradelivery and interdelivery?
Correct
Intradelivery and interdelivery
The “delivery” portion of the spread order names refers to the month in which the contract matures or expires. “Intra” means each leg matures during the same delivery month, while “inter” means that the legs mature during two different delivery months. Note that an interdelivery spread is synonymous with an intracommodity or calendar spread.Incorrect
Intradelivery and interdelivery
The “delivery” portion of the spread order names refers to the month in which the contract matures or expires. “Intra” means each leg matures during the same delivery month, while “inter” means that the legs mature during two different delivery months. Note that an interdelivery spread is synonymous with an intracommodity or calendar spread. -
Question 10 of 10
10. Question
Regarding intramarket and intermarket, which of the following statements is true?
Correct
Intramarket and intermarket
The “market” portion of the spread order names refers to the exchange(s) on which an order is traded. “Intra” indicates that both legs trade on the same exchange, while “inter” indicates that each leg trades on a separate exchange. The Chicago Board of Trade (CBOT) and the Minneapolis Grain Exchange (MGEX) both offer an intermarket spread in wheat.Incorrect
Intramarket and intermarket
The “market” portion of the spread order names refers to the exchange(s) on which an order is traded. “Intra” indicates that both legs trade on the same exchange, while “inter” indicates that each leg trades on a separate exchange. The Chicago Board of Trade (CBOT) and the Minneapolis Grain Exchange (MGEX) both offer an intermarket spread in wheat.