SI Calendar Spreads Explained: Term Structure, Carry, and Roll Behavior
Most retail traders have no clue how SI calendar spreads work, and it shows. They treat every SI month like it's identical, then wonder why volatility spikes during roll periods and why certain contract months behave differently. Calendar spreads explain all of that. If you want to understand how silver really trades under the hood, this is mandatory knowledge.
What an SI Calendar Spread Actually Is
A calendar spread is simply:
Long one SI contract month, short another SI contract month.
Example: Buy July SI / Sell September SI.
This gives you exposure to the price difference between months, not the outright direction of silver.
Why SI Months Don’t Trade the Same
SI months diverge because of:
- inventory levels
- delivery risks
- storage and financing costs
- hedging demand from miners/refiners
- industrial seasonality
This is identical to the issues covered in COMEX Inventories & SI, just applied across different months.
Contango vs Backwardation in SI
These two terms define the entire curve:
Contango
Back months > Front month — Usually when storage is cheap and inventories are comfortable.
Backwardation
Front month > Back months — Typically when inventories get tight or demand spikes.
SI sees both. It's not like crude oil where contango dominates. Silver swings depending on industrial cycles.
How Calendar Spreads Move SI Volatility
During roll periods, spreads tighten or blow out. This causes:
- sudden front-month volatility
- DOM thinning
- fakeouts that aren’t actually fakeouts — just spread movement
If you’ve ever seen SI behave “wrong” one week before expiration, calendar spreads were the reason.
How Hedgers Use Calendar Spreads
Commercial players use spreads to hedge without taking outright directional exposure.
Example: Refinery Inventory Hedge
- Refiner expects inventory to peak in May
- They short May SI, long July SI
They’re hedging carry costs and inventory timing, not trying to guess direction.
Why Outright Traders Must Respect Spread Behavior
Even if you never trade spreads directly, spreads shape front-month behavior.
- roll week → more whipsaws
- spread tightening → front month grinds
- spread blowouts → violent air pockets
SI is thin enough that spread adjustments hit price action directly.
Practical Rules for SI Traders
1. Avoid holding front month during roll week
Volatility jumps, liquidity disappears, and your fills get trashed.
2. Know which month is the “active” contract
Liquidity shifts like clockwork. Trade dead months and you’re asking for slippage.
3. Watch the spread when price makes no sense
Half the “weird” SI moves are spread-driven, not technical.
Final Takeaway
Calendar spreads are the backbone of SI’s internal price mechanics. They explain volatility spikes, roll behavior, why months diverge, and why front-month SI acts like a different market at times. The more you understand spreads and term structure, the more SI’s price action stops looking random and starts looking structured — because it is.