A McMillan Favorite: The Heating Oil – Gasoline Spread

By Lawrence G. McMillan

It's almost that time of year once again for one of our most successful seasonal trades: the Heating Oil – Gasoline  futures spread. This trade has had a steller track record over the years and has been followed closely in The Option Strategist Newsletter. The trading system is detailed in the most recent issue (Volume 22, Issue 19 published yesterday) and will be disccussed in more detail in upcoming issues.

The table to the right shows the yearly results we have actually experienced in the trades we have recommended to our subscribers. The Year shown in the table is the year of the futures contracts, not the year when the trade was established. Since this intermarket spread is recognized by the exchanges, the minimum margin requirement is only $2,200 per spread (so the 2 spreads we recommend in this position would require $4,400 margin).  Each contract moves at the rate of $420 per point, so the average gain of 3.34 points per spread is roughly $1,400 per spread.  That's an average return on investment of over 60%.

The profits in the table are not the theoretical profits that one could have encountered had the trade been entered on the “optimum” entry date and exited on the “optimum” exit date. Those optimal results would be much better, for several reasons – but mostly because we use a trailing stop on the trades. Also, we sometimes take partial profits.

The average holding time has been 76 calendar days, but that includes some very lengthy holding periods in the early years. In the last four years, the holding periods have been 27, 55, 53, and 50 calendar days.

For more information on the Heating Oil - Gasoline spread -- including system details, optimum entry and exit dates, the actual trading recommendation, and follow-up action -- subscribe to The Option Strategist Newsletter today. Introductory 3 month trial subscriptions are available for only $29.