Crack Spread
Categories: Derivatives, Stocks
Your least favorite part of every visit to your proctologist.
Okay...sadly, it’s just a metric that computes the difference between the price of one barrel of crude oil and refined petroleum products like gasoline, propane, and heating fuel.
The crack spread is an important figure that commodity traders use to hedge against rising and falling prices of distillates. Traders will sell futures of one side of the sector while buying futures of another to hedge against price volatility.
Traders typically buy or sell the crack spread. When buying the crack spread, traders think that refining margins will improve because of falling oil prices. Selling the crack spread means that people expect that refined products will dip due to falling demand or oversupply.