Crack Spreads

CAIA
#1

Ok, on page 142-143 of the text (1st book) they show an example of a crack spread.

I understand the example until Scenario A on the middle of page 143.

My question is: Why are they shorting crude oil on the futures market?? And why are the longing the gasoline on the futures market? Isn’t the original crack spread working out pretty well? WHY ARE THEY PUTTING ON A NEW CRACK SPREAD?!?!?

This is my first question on the CAIA board - I have a feeling it is not as efficient as the CFA boards. Prove me wrong boys!

#2

Yeah, looks like this forum isn’t really active…

#3

Hi Pistol, I don’t have the book with me, anyhow what you are referring to is known as “long the crack” or “reverse crack”. I figure someone can buy AND sell any spread, so it should not really matter. But yes, the original crack spread for hedging purposes used by the refinery business would be long crude (hedge against price rises - the industry buys crude) and short the crack (heating/gas, fixing the selling price).