The Power Of Spreads!

A typical investor nowadays will be involved in trading and investing in the stock markets and even investing in precious metals, such as gold and silver to help diversify and grow their portfolios in these volatile economic and political times.  Over the last several months, if you utilized the buy-and-hold strategies in the stock markets and even in gold, the typical investor has made money.
As we look at the chart of the ES (e-mini S&P 500 futures):

We notice that stock market has been in an uptrend.  Also if we look at the gold futures chart, it shows an uptrend as well:


Now, we focus our attention in the grain spreads in particular starting in late July when the grains started to shift downward after incredible upward runs for May, June, and early July in light of the U.S. drought situation.  In particular we look at the May / July spread for Chicago wheat markets:


From the peak of July 23rd to today's date, this spread has has an incredible downward run.  I, of course, had been advocating bearspreading during this time frame as export sales were tapering off and the market seemed to rationing demand in the wheat export arenas.
We can illustrate the power of leverage in these grain spreads because, in my opinion, it was a better investment (trade) than buying & holding either the stock market or gold futures.

 

 In conclusion, for an investment of $ 100,000, your better return from 7/23/12 to 12/13/12 was the bearspread in Chicago wheat (May/ July) vs. either one of the long ES and Gold futures positions, which beat out the other strategies by a factor of 11!   The difference was in the margin where the bearspread was only $ 270 per spread while the ES and Gold futures contracts were much higher, at $ 3850 and $ 7425 per contract respectively.
 Conclusion:  When looking at investments in the futures markets and even the stock markets, you should consider trading futures spreads as the lowered margin in certain key markets might give you a competitive advantage that not most traders or investors are looking at every day.  I spend the majority of time trading these spreads, so I am constantly looking for these opportunities on a regular basis.