1. Movement of the Outright Price Consider the following outright prices: BIDOFFER Sep 1399.75599.760 Dec 1399.70099.705 Mar 1499.63099.635 June 1499.57099.575 Sep 1499.51099.515

2. If we assume that all the outrights are trading on the offer then following this logic through, it is fair to suggest that the spreads would have these values: Sep 13 Dec 13 0.055 Dec 13 Mar 140.070 Dec 13 Jun 140.130 Dec 13 Sep 140.190 Mar 14 Jun 140.060 Jun 14 Sep 140.060

3. Movement of the Outright Price Consider the following scenario whereby the December 2013 outright contract is bought aggressively: BIDOFFER Sep 1399.75599.760 Dec 1399.70099.705 99.710 99.71599.720 Mar 1499.63099.635 June 1499.57099.575 Sep 1499.51099.515

4. A strong buyer of December appears in the market and the Dec starts to move through prices. For the purpose of this illustration we will assume that all of the contracts around the Dec continue to trade on their offers but do not trade out (the reality is likely to be that they also begin to increase in price). If the December contract had been bought up to a price of 99.72 the price view would now look like this:

5. BIDOFFER Sep 13 99.75599.760 Dec 1399.71599.720 Mar 1499.63099.635 Jun 1499.57099.575 Sep 1499.51099.515

6. And as a result we might see the spreads trading at the following levels: Sep 13 Dec 13 0.040 Dec 13 Mar 140.085 Dec 13 Jun 140.145 Dec 13 Sep 140.205 Mar 14Jun 140.060 Jun 14 Sep 140.060

7. In this scenario the front spread has narrowed (it has been sold) whilst the back spreads have widened – they will have been bought, either in the spread matrix or through implied pricing (whereby the spread prices are implied into the outright market).

8. It is very important to understand the implications of an aggressive buyer or seller of any outright contract and what effect it is going to have on any spreads or other strategies you are trading in or around that particular expiry month. How much have the 3 and 6 month calendar spreads moved? Have a think about the Sep 13 Butterfly in this situation. What will have happened to the fly and which way round would you have preferred to be, long or short?

9. In addition to understanding how an outright move might affect your open spread positions it is also important to see if it provides opportunities to put trading strategies on at good levels. If the trader feels that the other outright months will catch up with the aggressive price action or that the Dec contract will fall back in line by getting sold back down after a short term spike it may be an excellent trading opportunity for the spread trader to take advantage of.