Hi,

I'm looking at inter contract spreads. I would have thought it best to chart the number of contracts at the ratio you intend to trade them, so the chart is a reflection of your equity - like a simple outright or calendar spread.

e.g 1x RBH17 - 1x CLH17

Researching the topic, I have learnt this isnt the way to do it. Apparently, as there are 42 gallons to a barrel, I need to multiply RB leg by 42. Maybe it's been a long day, but to me that means the chart would be as if I was trading 42 RB's to 1 CL?

If I work out the P&L of buying 1RB, selling 1 CL, as legs, and covering a few days later, it does indeed seem as if the RB leg should be multiplied by 42 to reflect the daily P&L of the spread, but I cant understand why! Charting the NYMEX traded RB-CL crack also shows the price is multiplied by 42. The Season Algo chart of RBH17-CLH17 also shows the same pricing as if the RB leg is multiplied by 42.

So my question is: why should we chart contracts of different tick values at ratios that are different to that which they are traded? I'd be grateful for any insight. Probably something really obvious!...

Thanks

Nick