Money Maker (Of course, the above hypothetical examples assume exits as shown and don't include commissions or fees.) Now consider a real-life situation in GM and Ford. Figure 9.1 shows a spread chart of GM versus F. This spread has made eight large moves since 1999. What do I mean by a "large move"? Consider the following: From point 1 to point A, the spread traversed a range of $32 to $62, or about $3,000 on the spread. From point A to point B the spread dropped (i.e., GM losing to F) about $3,200 in value. From point B to point C the spread gained about $22. From C to D the spread lost about $25. From D to E the spread gained about $17. From E to F the spread lost about $17. From F to G the spread gained about $30. From G to H the spread lost about $16. As you can see, the moves have been rather large as well as plentiful. As stated earlier, intermarket spreads such as this one are considerably more volatile than intramarket spreads. Furthermore, the automobile business from 1999 through 2002 has been highly volatile as well as sensitive to underlying economic conditions (as is usually the case). And this has helped create a highly volatile situation in the spread.
The spread shown in Figure 9.2—United Airlines (UAL) and American Airlines (AMR)—has also been subject to the trials and tribulations of the airline industry. As the chart shows, UAL lost considerable ground to AMR until February 2002, when the spread reversed and UAL gained back about $8 per share on AMR. Finally, consider the Exxon Mobil (XOM) versus the UAL spread. Here we're comparing the performance of a petroleum stock with the performance of a major petroleum consumer, United Airlines. As you can see from Figure 9.3, XOM has gained steadily on UAL since 1999. In fact, the overall gain has been a whopping $73 per share (approximately). As you can see from the foregoing examples, the moves in intermarket spreads can be large and dramatic. stock market ~ stocks |
