I was looking at a commodity call spread today. The locals paid nothing to buy the 110/115 call spread for F07 expiry which trades on the H07 future against selling the same call spread for H07 expiry which is also priced off the H07 future. Isn't there an arb here?

Do you want to elaborate on what market you are talking about? Is this eurodollars?In general this is an example of a "serial option," where the option expires in January but is exerciseable into a march future. If I understand you, someone bought a Jan call spread, sold a march (proper) call spread, and did it for no credit or debit. I dunno. Check the strikes, and the ratio it was done in. Is it all 1 to 1?Forget about the "arb," (i.e. what prices this all got done at) and think about what net position you've got. What does it look like to you? (Vega, gamma, higher order greeks). Do you like this trade? How do you make money/lose money on this?

No local in his right mind would buy a Jan 110/115 call spread and then sell the March 110/115 spread for a zero net credit.That's a position that creates risk with no reward.The local may have taken the other side of that trade, i.e. buying the March 110/115 and selling the Jan 110/115 for a net of zero. He could have pulled it off if there were two separate customer orders that would have directly offset.To the other poster - Eurodollars don't trade over 100!

The market is coffee on NYBOT and the trade is definitely as I described it.Yes I like the trade (against the locals) but my question is whether there is a definitive way to lock in the edge at some point up until the Jan expiry as opposed to managing the risk.