How do i use a calender spread to profit if i know the spread between two futures is widening/narrowing?

Question

I only know the the spread in prices will widen/narrow and i have no other market information (do not know which way the market is going to move). Is there anyway i can put on a spread to profit from only knowing that the price difference between futures in two different months is going to widen/narrow?

Answer 1

If you expect the spread to narrow, sell the more expensive future and buy the less expensive future. Your initial credit will be equal to the difference between the two. After the difference decreases (or after you decide your inital expectation was incorrect) close both position.

If you expect the spread to widen, sell the less expensive future and buy the more expensive future. Your initial debit will be equal to the difference between the two. After the difference increases (or after you decide your inital expectation was incorrect) close both position.

If both futures have the same underlying asset but different months, the spread will be a calendar spread.