Calculating Spreads

We quote spreads 1 of 2 ways. Either way the spread trader always wants the spread quote to increase. If the spread is negative the trader first wants the spread to go to zero then to positive numbers.

FIRST WAY:  This is the easier of the 2 ways we quote spreads. If the Contract Size (Unit Move) is the same for the long and short contracts we simply subtract the short price from the long price.

SECOND WAY:  This way involves one more step. If the Contract Size (Unit Move) is NOT the same for the long and short contracts then we quote the spread as the difference between the dollar values of the 2 contracts. In other words, the contract size (Unit Move) times the current price of the short is subtracted from the contract size (Unit Move) times the current price of the long.

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