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Trading: short fut. opt., fut. spreads, div. stocks
Posts: 57 since Feb 2012
Thanks Given: 3
Thanks Received: 27
Hi Indiantrader,
Regarding the energy spread
What ratio are you looking at?
3:2:1 CL:RB:HO (2*42*/RB)+(42*/HO)-(3*/CL)
1:1 CL:RB (42*/RB)-/CL
1:1 CL:HO
Below the 1x HOh - 1x CLh for the last 8 years, (spread in us$).
In the last 3 years you can see it start going up around 1 jan.
is that what you have in mind?
I spoke about HO:CL spread considering current fundamental scenario and took a long on it after technicals confirmed the fundamentals. The 3:2:1 crack spread also follows HO:CL spread but RBOB gasoline correlation is not so good with CL as that of HO.
Another idea is about treasuries. With the recent taper in QE and Fed's plan to keep low rates for a long term, the yield curve is going to be more sloping since decisions on interest rates affects short term treasuries more. With that in mind, I am looking to go long on the ZN:ZB(10 vs 30 years) or ZB:USB( classic vs ultra) spreads and waiting for technicals to confirm.
Except that 10 year is not a short term rate -- not one that the Fed influences as much as the 2 year anyway, for example. Here are rates from last Wed (date of taper announcement) until yesterday, with the % change:
Over the short term (since last wednesday as shown) and long term (a year), the 10-30 spread has flattened. The 2-year has flattened against everything longer than it, as has the 5. In other words, the Fed's immediate decisions over policy are not as visible in the long end (10-30 yr) as they are in the short end (1-5 yr).
Maybe a 5-30 or a 2-10 would be a better spread to take advantage of the short-term Fed decisions. Just to be clear, I'm not saying the 10-30 steepener won't work, I'm just saying that it is not as sensitive to your trade premise as another spread might be. @tigertrader , is my logic right on this?
Sure the 2,3 and 5 years notes are more affected by the taper decision. The only advantage of 10-30 spread is higher trading range and higher liquidity.
Since the yields on short -term treasuries are expected to decrease, the yield curve is expected to lower on the short end which will raise the curve as a whole. All these are just presumptions and actual trades will be taken only on confirmation on price action and a technical model.
Trading: short fut. opt., fut. spreads, div. stocks
Posts: 57 since Feb 2012
Thanks Given: 3
Thanks Received: 27
hi,
If you set out all NG futures you get the chart below.
i guess the wave pattern is the seasonal pattern.
but i hope somebody can tell me why we seem to bottom at april 2016?
is that purely theoratically or is something really happening? to go from backwardation to contango.
i can imagine that at some point storage , interest etc kick in but you don't see this pattern at CL so that can't be it. (and it can't be energy as a whole since than you would see it at CL too, so is a NG thing)
there must be another reason? perhaps gas to liquid refineries start up or ports opening?
anybody?
And second, what would be wrong with the idea to buy the lowest (april 2016) for 4,000 and sell the current NG contract? to start a long term spread?
@indiantrader, i never traded treasuries so would have to look into that.
On the crack spread, if i had to purely spaculate i agree the changes of the spread going up seem somewhat more likely than down but if i look at the charts it seems that after a long and steady down period you have a better change of it to go up and although normally in the first few months of the year that happend (this time) already in the fall of 2013, but perhaps we get another up...
The big players in energy markets like NG are oil refinaries, oil products commercial traders. The profit for commercial traders is the crack spread ie the difference between crude oil and the products. They employ different hedging strategies involving multiple expiries for next few years to protect their profits.
The wave pattern you see is probably due to relatively higher volumes in the june and december.
The volumes and open interest are very low after 2015 dec.
For speculative purposes, the trader should only use contracts with high open interest and good liquidity, so looking beyond 2015 may serve no purpose for speculative trader.
For eurodollars, you would see good volume and open interest right till 2019-20.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,384
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Lowest month of the year is nearly always April/May as thats when we start filling storage.
2016 is the lowest year on the curve because LNG exports expected to start in 2017
