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The CL Crude-analysis Thread
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The CL Crude-analysis Thread

  #2051 (permalink)
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Whats wrong with using a simple stochastic strategy on calendars

this is the Z7 12 month calendar in Crude

Buy when stochastic is below 20 and sell above 80 - last indicator at the bottom
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Why calendars: less risk and partially hedged (still directional)

Of course this doesnt take into account any external factors that could influence overshoot.. but i calculated there are about 10 cycles this year


Last edited by jokertrader; September 19th, 2017 at 06:44 AM. Reason: updates
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  #2052 (permalink)
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SMCJB View Post
After a long summer, including two international weddings, and our friend Harvey (did you stay dry?), I actually haven't been very active in a couple of months. z7m8z8 is getting too close to expiry for my liking but my models all think it's cheap. The next few flys are all really flat and liquidity further back is to poor to trade - so virtually no 6mth fly positions.

The 12 month flys z890, z901, z012, z123 are also all very flat. No way z123 is 40c over z345 but that's just bad settelements and you can't trade it.

Even the 1mth flies are all pretty even.

So I have very little on - without doubt the least in years.

No longer in Houston but the house is ok fortunately... I will start digging in your posts here to understand better your approach to flies.
Regards.

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  #2053 (permalink)
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Back to this homework, I got a few questions:
I assume you look at the "term structure" with the 5-year spread data, in this case in clear Contango.
1) Do you use normally linear regression instead of polynomial for spreads? I noticed you used polynomial for flies in a different post. Do you normally use polynomial regression for the flies?
2) You mention you shorted the fly. I am not savvy on statistics but what deviation made you go ahead with this decision? I guess the graph is clear on showing this but I was wondering if there is a numerical sweet spot?
3) Finally, would it be possible that the fly just stays on backwardation and changes the spread? That is, that the fly never reverses and changes the structure?



SMCJB View Post
More Random Musings of a Spread Trader

Crude curve is still in relatively steep contango. CLN5 trading approx $6 below CLZ8 (which is month 42) so ~15c/month. Normally you would expect contango to be steepest at the front, and hence butterflies to be negative. Well interesting last night the z5/z6/z7 butterfly settled -1c and the z6/z7/z8 butterfly settled +10c. The last time either of these spreads settled positive was back in Oct/Nov 2014 when crude was significantly higher than here, and of course was backwardated.

The following scatter plot shows graphically how out of whack this is.
Note CL_18 is currently CLZ6, CL_30 is CLZ7, CL_18 is CLZ8

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Full Disclosure:- I am slightly short this Butterfly but do have hedges on against it



Last edited by ElChacal; September 20th, 2017 at 11:06 AM.
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  #2054 (permalink)
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ElChacal View Post
1) Do you use normally linear regression instead of polynomial for spreads? I noticed you used polynomial for flies in a different post. Do you normally use polynomial regression for the flies?

If I was trading spreads, or just trying to identify spreads that look statistically cheap or expensive one way I would do this would be a polynomial regression. Spread curves tend to be most pronounced at the front, and flat at the back, and as such linear doesn't work well.

In theory the same applies for flies but in reality that's not always the case. For example ZMZ 6 month flies trade at a premium to MZM flies. Hence it's often difficult to fit a single model.

ElChacal View Post
2) You mention you shorted the fly. I am not savvy on statistics but what deviation made you go ahead with this decision? I guess the graph is clear on showing this but I was wondering if there is a numerical sweet spot?

You've gone a long way back in time so I obviously can't remember exactly what I had on, or why.

What I actually seem to have said though was
Full Disclosure:- I am slightly short this Butterfly but do have hedges on against it
I suspect that what I was saying is that I was short this fly (the chart shows it's a full $1 above a simple linear prediction) but as protection I was long something similar, as protection against it. Given that this was the z678 fly I suspect I was long z567 and/or z789 against it.

ElChacal View Post
3) Finally, would it be possible that the fly just stays on backwardation and changes the spread? That is, that the fly never reverses and changes the structure?

Yes of course.
I know this is different than many/most people but I'm thinking in terms of relative value. It's not a question of backwardation or contango. Or even -$1 vs -50c. It's where is this (whatever 'this' is) relative to 'something else'.

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  #2055 (permalink)
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SMCJB

First of all thank you for all your posts in this thread. I have learned a lot and I think I speak for many when I say this.
Sorry if I am being too inquisitive and if you dont wish to answer sth thats ok.

How sensitive to fundamentals would you say is your decision making (or your models)? ie. Inventory data, etc? I ask this because I guess your statistical approach to trading (from what Ive read) could be used with other instruments but you seem to trade CL mostly (only?)...


Last edited by ElChacal; September 20th, 2017 at 12:05 PM.
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  #2056 (permalink)
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ElChacal View Post
How sensitive to fundamentals would you say is your decision making? ie. Inventory data, etc? I ask this because I guess your statistical approach to trading (from what Ive read) could be used with other instruments but you seem to trade CL mostly (only?)...

One of the ways I try and protect myself from fundamentals is that I start scaling my positions down linearly once we reach 100 trading days to expiry (almost 5 months) so that I have no position at 50 days to expiry.

Unfortunately I seem to be unable to find any other markets that have a long term defined forward curve, where something like this may also work other than Eurodollars (not USD:EUR). I started experimenting with Eurodollars earlier in the year but so far the results have been insignificant/unimpressive.

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  #2057 (permalink)
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SMCJB View Post
One of the ways I try and protect myself from fundamentals is that I start scaling my positions down linearly once we reach 100 trading days to expiry (almost 5 months) so that I have no position at 50 days to expiry.



Unfortunately I seem to be unable to find any other markets that have a long term defined forward curve, where something like this may also work other than Eurodollars (not USD:EUR). I started experimenting with Eurodollars earlier in the year but so far the results have been insignificant/unimpressive.


How about brent?



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addchild View Post
How about brent?

Too similar to WTI, but less pronounced. I think probably because there's more producer hedging with WTI.

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Interesting post by @kavi15

https://futures.io/elite-circle/20164-master-homework-statistics-thread-63.html#post656612

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  #2060 (permalink)
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Worthwhile read.

IEA Commentary: Looking for balance in the oil market

September: Commentary: Looking for balance in the oil market

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