Lead Zinc spread

I thought of writing about inter commodity spread that I have already explained in my previous posts. After seeing the spread gap in the month of July which averaged 1.758 I think the current month gives us at least two windows  to enter into spread.  Kindly take a look at the chart below which is current month MCX rates for Leadmini and Zincmini.

Date	Leadmini	Zincmini	Spread
8/1/2012	105.50	101.85	3.65
8/2/2012	104.95	102.05	2.90
8/3/2012	105.25	102.45	2.80
8/4/2012	105.25	102.45	2.80
8/6/2012	104.80	102.40	2.40
8/7/2012	105.15	102.40	2.75
8/8/2012	105.35	102.75	2.60
8/9/2012	105.80	102.60	3.20
8/10/2012	104.85	101.80	3.05
8/11/2012	104.90	101.90	3.00
8/13/2012	103.85	101.25	2.60
8/14/2012	104.10	101.60	2.50
8/16/2012	103.00	99.70	3.30
8/17/2012	105.10	100.15	4.95
8/18/2012	105.15	100.20	4.95
8/20/2012	105.40	99.50	5.90
8/21/2012	105.55	99.75	5.80
8/22/2012	105.85	100.60	5.25

On the 14^th we see from the chart the spread gap is 2.50. There is a good chance for this spread gap to get widen. Therefore let us consider a Bear spread.

Let us assume that we have entered a Bear spread on the 14^th. We would have sold one lot of Zincmini at the rate of 101.60 and bought Leadmini at the rate of 104.10

On the 20^th we see the spread gap of 5.90, which seems to be a good target to close the deal. We have to buy Zincmini at the market price of 99.50 and sell Leadmini at the market price of 105.40

The result is Zincmini covered  ((101.60-99.50) * 1000 ) with the profit of 2490/- Leadmini gives us a profit of ((105.40-104.10)*1000)  1300/- a total profit of  3790/- sometimes we can make money on both legs like this trade. 

The above is another example of spread trading. In the coming weeks whenever an opportunity to construct a Bear or Bull spread arises I shall post it here for the benefit of the viewers.