Calculating Implieds From Implieds
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With implieds, you may calculate implieds from implieds.
The word generation is used to describe how far away the implied price is from the direct price.
- First generation implieds are composed of only direct prices.
- Second generation implieds require a first generation implied price and at least one direct price.
- Third generation implieds require a second generation implied price.
- Fourth generation implieds require a third generation implied price.
- And so on...
Example: In this example there is a direct Bid price in June and an Ask price in the June - September spread.
|Crude Oil Contract||Bid Qty||Bid Price||Ask Price||Ask Qty|
|June - September||-10||75|
|September - December||50||-11|
The bid price of 6010 in September (shaded yellow) is a first generation implied out order. The price is implied out of the June - September Ask spread price of -10. When the ask spread price of -10 is subtracted from the June bid of 6000, we have a price of 6010 in the September bid.
June Bid (Leg 1)
Implied September Bid (Leg 2)
June - September Ask Price
The direct price in December may be combined with the first generation implied bid price in September to generate a second generation bid price in the September - December Crude Oil spread (shaded green).
Implied September Bid (Leg 1)
December Ask (Leg 2)
Implied September - December Bid Price