How to Identify a High-Probability Calendar Spread: A Step-by-Step Walkthrough

Dual Edge Research publishes two powerful newsletters that work great individually — and even better together. The Bull Strangle Newsletter focuses on stocks and options, combining stock ownership with premium-selling strategies to generate consistent income and market-beating returns. The Smart Spreads Newsletter specializes in seasonal commodity futures spreads, offering a diversified approach with low correlation to equities. Together, they deliver a complete investment perspective — one focused on income, the other on diversification — all under one simple subscription.

Introduction

Calendar spreads — buying one futures contract month and selling another in the same commodity — are among the most structurally powerful tools in futures trading. But identifying truly high-probability setups requires far more than spotting a seasonal chart or reacting to price action in the front month. A professional-grade calendar spread process is built on structure, data, and validation. The goal is not to predict where prices will go, but to isolate relative mispricing's that tend to resolve in repeatable ways. Here is how that process unfolds.

Step 1: Begin With Seasonal Structure

Most high-quality calendar spreads originate in seasonality. Commodity markets follow recurring physical cycles driven by planting and harvest schedules, storage and inventory flows, transportation constraints, and shifting consumption patterns. These forces create persistent distortions between nearby and deferred contract months that repeat year after year. A spread aligned with a well-defined seasonal tendency already carries a structural tailwind before any statistical or technical filters are applied. This is where the search begins — not with price, but with how the physical economy shapes futures curves.

Step 2: Quantify Seasonal Edge Through Historical Optimization

The next step is to determine which seasonal spreads have actually performed best over time. This is done by systematically analyzing every viable entry and exit date combination across all relevant contract-month pairings over a long historical window. The objective is to identify which spreads have delivered the highest win rates, the most consistent performance, and the most stable drawdown profiles when traded in a disciplined and repeatable manner. Instead of asking which spreads look seasonal, this step answers a far more important question: which spreads have demonstrated a measurable and persistent edge when traded under clearly defined rules? This transforms seasonality from a descriptive pattern into a statistically validated opportunity set.

Step 3: Compare the Current Spread to Its Seasonal Pattern

Once a strong seasonal spread is identified, the next step is simply to see how today’s spread compares to how it has typically behaved at this point in the year. In practice, this means viewing the current spread plotted directly against its historical seasonal pattern on the same chart. The seasonal pattern acts as a visual guide, showing the typical path that spread has followed over time. The goal is not to use the pattern as a price forecast, but as context to evaluate if the current price action is consistent with historical norms.

Used this way, the seasonal overlay becomes a reality check: Is this spread behaving normally — or is it unusually stretched, compressed, or early/late relative to its historical rhythm? This visual comparison is one of the most powerful filters in calendar spread trading, because it quickly reveals whether a spread is aligned with its natural tendencies or presenting a structural mispricing worth investigating further.

Step 4: Validate With Positioning and Institutional Flows

With a strong seasonal and normalized setup in place, the next layer is understanding how the market is currently positioned. This includes analyzing:

• Commitment of Traders data to assess commercial hedging and large speculator exposure
• Estimated CTA and hedge fund positioning to identify potential flow support or resistance

A high-probability setup is not one where everyone is already crowded into the trade, but one where statistical edge and positioning dynamics reinforce each other. This step adds a behavioral and flow-based dimension that pure seasonality models often miss.

Step 5: Confirm With Market Structure and Technical Behavior

Finally, the spread is evaluated through the lens of real-time market behavior to ensure the opportunity is actionable today — not just attractive on paper. This includes assessing how current prices compare to their most recent ten-year range, whether the market is stretched or compressed relative to history, and whether momentum and relative strength indicators on the spread itself support the trade thesis. The technical condition of the front-month contract is also examined to confirm that broader price behavior is aligned with the spread structure.

This final layer ensures the trade is not only structurally sound and statistically validated, but also synchronized with how the market is actually behaving in the present moment.

Why This Process Works

This framework does not rely on forecasting price direction. Instead, it isolates relative mispricing's and timing mismatches within the physical supply chain — the true source of edge in calendar spread trading.

By stacking:

• Structural seasonality
• Statistical validation
• Historical normalization
• Institutional positioning
• Market structure and technical confirmation

traders align with multiple independent forces that tend to resolve in predictable ways. When all layers align, the result is not just a trade idea, but a high-probability opportunity grounded in structure, data, and disciplined execution.

Final Perspective

For traders seeking to apply this framework in real time, the Smart Spreads Newsletter from Dual Edge Research focuses exclusively on identifying and managing calendar spreads using this exact multi-layer, data-driven process — transforming seasonal tendencies into disciplined, statistically-backed trading opportunities.

More Information

Now you can get two powerful newsletters — for one simple price!

• For stocks and options, the Bull Strangle Newsletter shows you how to combine stock ownership with dual option selling — a disciplined strategy that has consistently outperformed the S&P 500.
• For commodity futures, the Smart Spreads Newsletter focuses on seasonal commodity spreads — a proven, low-correlation approach that thrives in all types of markets.

Each newsletter is designed to deliver consistent income on its own — but when used together, they create a complete, diversified trading approach that works in any market environment.

Visit BullStrangle.com to subscribe for just $1 for the first month.

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Darren Carlat

Dual Edge Research

(214) 636-3133

DualEdgeResearch@gmail.com

www.BullStrangle.com

Disclaimer

This information is for informational purposes only and should not be considered as investment advice. Past performance is not indicative of future results, and all investments carry inherent risk. Consult with a financial advisor before making any investment decisions.