Spread Trading: Advanced Strategies
Crack spreads, spark spreads, multi-leg positions; refining margin and hedging
Spread Trading: Advanced Strategies
Executive Summary
Refined products—gasoline, diesel, and others—are made from crude oil in refineries. The margin a refiner earns is the difference between the value of those products and the cost of crude. That margin is the crack spread. In the same way, power plants use natural gas to generate electricity; the margin they earn is the spark spread. These spreads are central to energy markets: refineries, power plants, and traders all care about them because they drive profitability and operating decisions. This module covers crack spread fundamentals, refining economics and product yields, crack spread trading strategies, correlation dynamics and risk management, and advanced multi-leg spreads. For practitioners and consultants, it supports margin management and programme design.
Learning Objectives
By the end of this module you will be able to understand crack spreads, spark spreads, and multi-leg commodity spreads, analyse refining margin dynamics and hedging strategies for refineries, design optimal spread positions for hedging and speculation, evaluate correlation dynamics between related commodities, and manage spread portfolio risk and optimise position sizing.