Slow day at work, so I’ll start with an easy one. Commodities Define, bull and bear spreads, processing spreads, substituion and location spreads. Answer: Bull spread is simply a spread in which you are long the short term contracts, and short the long term contracts. Losses are limited because price differences can’t exceed carry cost. Bear spreads are the opposite short the short term, and long the long term, Losses are unlimited since nearby can rise above the upper limit, and bear would have to deliver. Processing spreads are twofold: Crush and Crack: Crack is usually done 3:2:1 with 3 barrels of oil bought, 2 barrels of gasoline , and one of heating oil sold. Crush is done the same but with soybeans where the products are soybean meal and soybean oil. Substitution are trades between commodities which can be substituted for each other, like heating oil and natural gas. You would take ln(HO/NG) to get the ratio Location spread simply involes trading the same commodity at different locations, i.e. crude oil delivered in the Uk as opposed to the US.
Thanks for the essay ideas.