In futures trading, a box spread is a spread constructed from two consecutive butterfly spreads (also known as a “double butterfly”), summing to +1 -3 +3 -1 in consecutive, or at least equally spaced, contracts. It derives its hedging construction from characteristics of Pascal’s Triangle.[1]

Definition

The term also has an alternative meaning within the context of inter-commodity spreads whereby it refers to either an inter-commodity spread within one month offset by the same inter-commodity spread but in another month (or alternatively a calendar spread for each respective instrument). Often presumed not to move much (as in theory they are practically non directional) they typically, but not always, trade in a range.

Examples

As a Double Butterfly

Given two butterfly spreads with common overlapping wings:

(CLH17 – 2 * CLM17 + CLU17) – (CLM17 – 2 * CLU17 + CLZ17)

The difference between the two results in a “double butterfly”:

CLH17 – 3 * CLM17 + 3 * CLU17 – CLZ17

A box/double butterfly can also be constructed using a mixture of calendar spreads to achieve the same result:

CLH17:CLM17 – 2 * CLM17:CLU17 + CLU17:CLZ17

Given two related instruments that trade as inter-commodity based instruments:

CLH17:BRNH17 – CLM17:BRNM17

The resulting position is roughly equivalent to two calendar spreads utilizing the same months:

CLH17:CLM17 – BRNH17:BRNM17