Many traders prefer commodities for their high volatility and prompt reaction to world events, which makes this asset class great for both technical and fundamental analysis.
Still, trading commodities isn’t always about predicting the price of oil or gold. Traders can also exploit how the price relationship between different futures contracts changes over time. This is possible because futures contracts have expiration dates, opening the door to a concept known as calendar spreads.
Traders can integrate these calendar spreads into their strategies while using a commodity trade platform. They can focus on price differences between contract months instead of just betting on whether the commodity will go up or down.
Here is all you need to know about calendar spreads explained briefly.
What Is a Calendar Spread?
A futures calendar spread is the price difference between two futures contracts for the same underlying asset, such as oil, but with different expiration dates.
Many traders implement the so-called spreading strategy, in which they simultaneously buy one futures contract and sell another contract for the same commodity.
This approach is especially suitable for low-risk traders, as spreading is often regarded as a hedging technique as well.
For example, a trader might buy September WTI crude oil futures while selling December WTI futures. In this strategy, the important thing is not the direction of the price but how the price gap between the two contracts changes over time.
Let’s say that September WTI trades at $80 per barrel while December trades at $75. The spread is therefore +$5. After a few days or weeks, September price rises to $85 and December to $76, which means the spread has widened to +$9. As you can see, both contracts have become more expensive, but the nearby September contract has gained more.
These differences between contract months also help shape the futures curve. In our example, the WTI market is in backwardation, as nearby prices are higher than those for later delivery. Otherwise, when later-dated contracts are more expensive than immediate ones, the market is in contango.
The goal of calendar spread traders is to predict changes in these relationships rather than simply anticipate the overall direction. This is especially relevant for agricultural products, which follow seasonal trends.
How Do Traders Use Calendar Spreads?
Here is the basic mechanism behind spreading: a trader who believes the nearby contract is about to strengthen relative to a back-month (or forward) contract would buy the former and sell the latter. If they expect a contango condition to intensify, they buy the later contract and sell the front one.
Let’s consider wheat as an example. A trader expecting the Russia-Ukraine war to disrupt near-term wheat exports might conclude that immediate supply could tighten, since both countries are major wheat producers. Rather than just going long on wheat futures, he could buy a front contract and sell a later contract.
This strategy is less risky than predicting market direction, as it comes with built-in hedging. Because of this, margin requirements are reduced significantly. Thanks to this, traders can control larger positions with the same amount of personal capital. For example, they can control five spread positions with the same personal funds needed to buy one single futures contract.
This capital efficiency allows more diversification across multiple commodities.
Besides futures, calendar spread options (CSOs) provide another way to exploit these relationships. Instead of holding two futures positions, a CSO is a single option on the spread between two futures expirations.
In the past, betting on the shape of a price curve, rather than its direction, used to be a niche move. CME Group’s 2025 whitepaper on calendar spread options describes how that strategy has since become a core hedging tool across crude oil, natural gas, and refined products markets.
What Are the Risks of Calendar Spread Strategies?
Buying and selling at the same time doesn’t make a calendar spread risk-free. If the curve doesn’t evolve as expected, with the gap moving in the opposite direction to what the trader anticipates, the position can lose money.
This unexpected change between the price gaps is known as the basis risk. Spreads can move unpredictably due to changes in inventories, production, geopolitical events like the Strait of Hormuz tensions, weather, and so on. It’s worth noting that liquidity may also differ between contract months, especially when it comes to further-dated futures.
There is also an execution risk to take into account. This may happen when spread orders execute at slightly different times, resulting in slippage. For example, a trader may fill the first leg at the expected price, but the second leg executes at a worse price, which may happen during high volatility. Therefore, traders must ensure that their platform can execute spread orders simultaneously.
All in all, calendar spreads give active commodity traders another way to explore opportunities by focusing on the price gaps across different delivery months rather than simply anticipating whether the market will rise or fall.
