Crush Spread

What is a Crush Spread

A crush spread is an options trading strategy utilized in the soybean futures market. The general term for this is a gross processing margin. A soybean crush spread is frequently utilized by traders to oversee risk by consolidating separate soybean, soybean oil and soybean feast futures positions into a single position.

The crush spread position is utilized to hedge the margin between soybean futures and soybean oil and feast futures. A crush spread is like a crack spread in the crude oil market in that it is various positions in a single category combined into one position.

BREAKING DOWN Crush Spread

A crush spread as a trading strategy includes taking a long position on soybean futures and a short position on soybean oil and dinner futures. The strategy may likewise be a reverse crush spread which comprises of taking a short position on soybean futures and a long position on soybean oil and feast futures.

By all the while purchasing soybean futures and selling soybean feast futures, the trader is endeavoring to lay out an artificial position in the processing of soybeans, which the spread makes. Utilizing the crush spread the trader expects the processing costs of soybeans are undervalued. On the off chance that this is true, the spread will increase, and the trader will bring in money by buying soybeans which will get more expensive. Simultaneously, they will sell soybean oil and dinner which will go down in price.

The reverse spread is additionally accurate. Here, the trader expects the processing costs of the soybeans were overvalued. Utilizing the reverse crush spread will bring in money by selling soybean futures which abatement and buying soybean oil and dinner futures which will increase in value.

Since the spread relationship between the futures will shift over the long haul, traders can gain directional exposure to the developments.

Hedging and Speculating Using Crush Spreads

A crush spread position is essentially utilized exclusively by [hedgers](/business hedger) and speculators. Hedgers are individuals engaged with the production of soybeans, soybean oil and soybean feast. Trading futures on the very products they are creating is an approach to relieving the risk that the cost of their products will go down. Hedgers balance the risk of writing off the genuine product sales by bringing in money on the crush spread of the soybeans and handled soybeans. Since a crush spread strategy uncovered overinflated processing costs by expanding the costs of soybean oil and soybean feast futures relative to the costs of soybean futures, hedgers probably could influence a crush spread by keeping up with processing costs.

Examiners are searching for mispricing in the market and will utilize a crush spread or a reverse crush spread to exploit mispricing of soybeans, soybean oil or soybean feast.