looking for spread traders

January 3rd, 2014, 02:54 AM

MeanBean

Where to learn to spread trade? Can anybody recommend resources to learn spread trading? Not looking for "guru" but simple resource that explains the mechanics. thanks.

here is a 90 minute youtube video, nice intro
Seasonal Futures Spread Trading at the ICE
Seasonal Futures [AUTOLINK]Spread Trading[/AUTOLINK] at the ICE - YouTube

You can skip the first 6 minutes.
if you find any better out there, let us know.

January 3rd, 2014, 02:55 AM

@crito,

You are doing mentions wrong. Simply type @Username, like @Big Mike or @crito. Nothing more.

Mike

January 4th, 2014, 07:09 AM

In the mentioned youtube video, Turner shows that there is more volume in spreads than in the futures can that be true? Or only for very popular spreads?
Second, does anybody know how to enter the (ice?) exchange spreads in to IB (interactive brokers trader workstation)?
So far I simply created a spread in IB myself but it would be interesting to look at the exchange spread for better charting.
Perhaps have to activate some (ice) data provider?

@Big Mike, I�ll give it a try

sometimes it does come up as a link sometimes it doesn't...

January 4th, 2014, 09:27 AM

In my attempt to learn to trade spreads, I had another look at the NG spread (NGh – NGj) and the comments in the Turner video.
It makes sense to get a feeling what can happen (high & lows) to look at previous years (the moore research charts Turner used).
So I downloaded (via pinnacle) the historical future contracts, wrote some software to create my own spreads & chart (I like a bit more flexibility).

Below the chart. I took the time period 1-jan till 1-march for the years 1991 till 2014 (so this is no continues contract only a short timespan(2month) of each year and then ‘glued’ together. Those vertical lines up do not exist but happen because i only look from 1/1.
Since its now early January and it will close 2th half feb, it makes no sense to me to look outside that timeframe.
It gives you the bandwidth what can be expected to come...

The two extremes are 2001 & 2003
To be more exact early jan 2001 & end feb 2003
So good to know that this spread can reach $2 ($20,000) and if you trade it as a bear spread you better wait till it is really moving down hill

I than had a look at the NG report SMCJB was so kind to share and I downloaded the historical inventory data.
I set that out in a spreadsheet (added more years, from 2000 so 2001 & 2003 are in there)
Below the NG storage charts.
And it now makes sence why 2001 & 2003 had such a big spread.
As you can see 2001 already started low so that is why the spread was so high from early jan.
And 2003 reached the lowest point of those 14 years so that makes sense too.
Looking at this chart, at Dec for year 2013, we currently have an average year so I doubt that this will give us those huge spreads.

I guess the next step will be to look where the spread ended around 15th of feb for those years and at what minimum level to get in to have a change on a nice ride down.
Current spread is at 0.131

Comments on how to trade this welcome,

January 5th, 2014, 09:09 AM

hi,

I found a newsletter where a spread is discussed. Date was 18 dec 2013 so still somewhat recent.
I'm interested in what you think and if you would trade it?

Details in screenshot.

it seems he purely looks at the current spread in combination with the average of the past few years (the purple line), so the seasonal. Assuming that on average, the spread should go up. so no indicators, simply get in around 18th of dec and get out 18 feb.

I had a look at the past 5 years, see screenshot below, top left is current, rest older years.
First notice day is 24 feb so you need to get out before that.

Personally i can't see a clear seasonal pattern but looking forward to your replies.
Big point (1) for cotton is $500

If you blindly entered at 18 th of December and close at 16 feb (without stops), all trades would have been winners. (for those past 5 years).
Biggest drawdown’s would have been 2013 ($925) and 2009 ($475)
Profits where, $695, $1295, $5265, $45, $465
So if we ignore the big winner, on average $625 (and when you are lucky a lot more).
If you set your stop loss at $600 or $900 you would have had 80% winners (2013 would have stopped you out)
So you risk would roughly be the same as the avg. gain but you have a high chance of success.
Could be interesting…

January 8th, 2014, 08:55 PM

josh

Yields on 5s, 10s, and 30s are higher from Dec 1 to Dec 31, not lower. From your own chart, you can see that 5 year yields increased from 1.37 to 1.74 (37 bps), 10 years went from 2.75 to 3.00 (25 bps), whereas the 30 year rose from 3.82 to 3.94 (only 12 bps). Thus the 5-30 and 10-30 curves have both flattened.

If you buy the NOB spread, as you say, and calculate the ratios correctly, you are betting on a steepening of the 10-30 curve, which has flattened in December (and for the entire 2013 year). Most are expecting continued rising yield on the 10 year, most are thinking between 3.25 and 3.60 or so for 2014. And since rate hikes will probably not occur until late 2014 (maybe August-Sept earliest?), it is likely that the 2-10 curve will probably steepen. But why are you expecting 30 year yields to rise so drastically? We are in a relatively low inflation environment, nowhere near 2% target, so why would 30 year yields rise so much? Maybe it will, I just don't see it. Maybe it will flatten, maybe it will steepen. But regardless of that, my point is that you are talking about a Fed-based play, yet the NOB is not really an appropriate spread for that, at least as far as I can figure--you have not explained why it is anyway--you keep talking about short term rates, but the NOB spread does not involve short term rates.

@josh: BTW, the NOB (10/30) flattened 15 basis points from 129-114 since the taper announcement and the TUF (2/5) steepened 20 basis points from 73-93 since the taper announcement. So, you were spot on in your reasoning.

January 8th, 2014, 11:47 PM

Where do we go from here?

Following some reading about the market seasonality I decided to chart annual market performance since 1980 based on how well January traded.

I scored January 3 times. If 1st 5 trading days were positive then January scored 1, if the last five days were positive then January scored 3 and if the entire month traded positive then January scored 5. For example, Jan.2013 scored 9.

Based on the data above I am thinking we may get around 5% return this year. What is everyone's sentiment for 2014?

January 9th, 2014, 07:17 AM

zikonc

Where do we go from here?

What is everyone's sentiment for 2014?

Hi Zikonic,

I'm not a big trader on es (i assume this is sp500?) so i would guess as long as there is fed stimulation the sp goes up when they stop it slows and most likely will go down.

i had a quick look at the sp future but can't find any spread trade there, no seasonals, no big differences between current contract and eg. 1 year further. i guess it has to do with the fact that there is no fear for harvest or stock/transport etc..

If you look at the up and down years for es (?) do you get the same results for nasdaq and russel? or are there years where es is up but nasd is down, etc?
Would be interesting to see if your predications will come true...

January 9th, 2014, 07:23 AM

hi,

I got an email (free newsletter) from Craig Turner (guy from mentioned youtube video) regarding a possible spread trade.
see screenshot below.
I haven't looked into it yet will do later,

ps: the mentioned usda report will be published tomorrow.

January 9th, 2014, 09:07 AM

Hi KubaK & others,

Thanks for your input and info, appreciated!

Interesting you prefer to ride the seasonal up. In my little study so far I have a small preference for riding the spread back to the norm so to say. So eg. when something happened that created the front month to rise relative to the back month I prefer to wait till it is moving back to the back month. That way I have plenty of time to enter and know what to expect (roughly) on max profit. I guess it may have to do with my preference to sell naked options.
But perhaps you can change my mind ;-)

Here is a sample I opened 7 jan. its (again NG)
I sold NGk14 and bought NGk15 so I sold the �NGK14-NGK15�
I think the �we-run-out-of-NG� is creating a fear premium but we have reach a top so I hope to ride the fear mountain down back to the norm(al).
Perhaps I�m too soon but time will tell.
And May NG is after the NG switch GH months. As you can see most previous years where downwards.
Today another NG storage update, can be interesting, will have huge draw from inventory but wit warmer weather comming up NG already moved a few % down last 2 days, we'll see...

And I agree we need to create some standard in front month vs back month, buy what sell what since it can be very confusing.

Looking forward to any trades you like to share, new or historical.
And hope you don�t mind if I pick your brain now and then. (feedback/your thoughts on the ngk14-ngk15 appreciated)
So far (very limited) I�m quite enthusiastic on trading future spreads.

looking for spread traders

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looking for spread traders