# How to calculate the implied daily move of a spread between two futures contracts?

• For a single future contract, I can calc the expected daily move (or rent) by using the following formula:

      Rent = [Future Price * Implied Volatility / SQRT (252)]


I am looking for doing the same thing for the daily expected move of a spread between two futures contract (a spread can be negative which makes the exercise harder)

Input I have are:

Future 1 Price = 66.50 ; Future 2 = 67.00

Implied Future 1 = 0.23 ; Implied Future 2 = 0.22

Correlation Future 1/Future 2 = 0.9850


I am looking for calculating the expected move (rent) of the the spread b/w the two Fut (using the IV of the spread b/w the two Fut). Thank you for your help.

First calculate Rent1 and Rent2 for the two futures. Then the expected daily move of the spread between the futures is

Sqrt( Rent1^2 + Rent2^2 -2Rent1Rent2Rho)

Where Rho= the correlation between daily moves ifvyhdvteonfurures

1. For the daily move you should take the square root of a single day: $$\text{Rent} = \text{Future Price}\times \text{Implied Volatility }\times \sqrt{\frac{1}{252}}$$

2. $$\text{Spread} = \text{Fut1IV} - \text{Fut2IV}$$

Regarding your question, are you wanting to calculate the spread between the two Fut IV or the IV of the spread b/w the two Fut?

• I am looking for calculating the expected move (rent) of the the spread b/w the two Fut (using the IV of the spread b/w the two Fut). Thank you for your help. – Nick Sep 22 '16 at 7:16
• Any idea how to achieve that? Thank you. – Nick Sep 23 '16 at 8:21