For CL, do spread prices lag the outrights? and if yes, should i be looking at the front month or the nearer contract in the spread?

From what i have read spreads could get heavily influenced by larger players and that might mean they manipulate one leg to affect spread prices and thus might not make sense to correlate the spread price to an outright price... but just thought id ask

From also what ive read... front month prices are heavily influenced by a variety of factors .. i am strictly looking at the 12 month Z contract.. so will be looking at Z18/Z19 for sometime and as someone here suggested.. maybe start disregarding that and start looking at Z19/Z20 as we get into late summer (not sure when is too close!!!!)

@tturner86 One such CL trader is chigrl on twtr. Have followed her for a while. She is good.. though she maybe an oil bear.

SMCJB

I don't trade Gasoil specifically but below I link 5 video presentations by Doug Huggins of Quantitative Markets Analysis in London. I think these give an excellent example of some "Relative Value" trades. Several in reality are a little over simplified and would have left you open to market risks that you did not want. There are actually better (but more complicated) ways to construct some of these trades and Doug even allures to that and explains why in the 4th or 5th video. These videos are all sponsored by ICE as they transition their Gasoil contract to a new Low(er) Sulfer specification but is completely transferable to any commodity with a forward curve. I didn't know Doug before seeing these video's but have reached out to him recently. He is a very friendly individual who has also greatly impressed me with his knowledge. Each video has supporting slides. The ICE Low Sulfer Gasoil Forum. Sep 16th. (It's Presentation 4). Trading ICE Low Sulphur Gasoil - Update 1 Nov 4th Trading ICE Low Sulphur Gasoil Issue 2 Nov 18th Trading ICE Low Sulphur Gasoil Issue 3 Dec 2nd Trading ICE Low Sulphur Gasoil Issue 4 Dec 16th

I'm just wondering if these videos and slides are still around somewhere as they were posted a while back (thanks SMBJC). I can't find any reference to it with Google, other than in this thread. Maybe they were saved by some of the members here?

adam777 

I'm just wondering if these videos and slides are still around somewhere as they were posted a while back (thanks SMBJC). I can't find any reference to it with Google, other than in this thread. Maybe they were saved by some of the members here?

Unfortunately they are not. I wish I had kept copies. I even contacted Doug and ICE but couldn't get copies.

I am reading the below and trying to understand it well.. so would it be possible to provide example of adjusting calendars with say M and Z as examples..

So lets say I am long the 12 month Dec 18 calendar and I am wrong or want to hedge
a) Would i go short the 12 month Dec 19 calendar? Can i do the same with the 6 months as well
or
b) I know i want to hedge.. but i will look for some contract to short which seems overvalued and not necessarily the 12 month or 6 month but just hunt for what seems overvalued?
Again like u said below, its more about constantly putting on and removing trades which are either overvalues or undervalued?

Of course if the answer is B, then different calendars have different ATRs and thus quantity might need to be adjusted.. i.e. since a 1 month calendar moves less, i might need more of the 1 month calendars to hedge against a 12 month calendar - right?

SMCJB 

Imagine your long z890 vs short z901. (In this case I truely believe z901 was the fly out of whack, but I really don't care because its all relative values). On 23rd March, the z789/z890 roll drops to -66c so lets assume you move some of your z890 length to z789. Then on 10th April, the z789/z890 roll rebounds to -1c so you move your z789 length back into z890. You have the same position on but by optimizing your hedges you've added 65c ($650) in profit. (Obviously for illustration purposes I picked the extreme high and low, I'm not claiming to have captured the prices illustrated.) In the example above you made $650 over 12 days = 54/day per lot and this is just optimizing your hedges. Your core position - the z890/z901 spread - has also been moving your way the entire month. Think of portfolio optimization rather than managing individual trades. My goal is to continually be buying things that I think, well that my models say are under valued and selling things over valued. Today that might be A & B, tomorrow it might be B & C, and the next day A & D leaving me with say C & D. As long as I can keep doing that, and avoid over concentration in any one position, in the long run it adds up nicely (assuming my models are right).

jokertrader 

I am reading the below and trying to understand it well.. so would it be possible to provide example of adjusting calendars with say M and Z as examples.. So lets say I am long the 12 month Dec 18 calendar and I am wrong or want to hedge

If your wrong you should get out. Only reason you should ever hedge a wrong, bad or losing position is if you can't get out of the actual position.

jokertrader 

a) Would i go short the 12 month Dec 19 calendar? Can i do the same with the 6 months as well or b) I know i want to hedge.. but i will look for some contract to short which seems overvalued and not necessarily the 12 month or 6 month but just hunt for what seems overvalued? Again like u said below, its more about constantly putting on and removing trades which are either overvalues or undervalued?

I'm not trying to hedge. I'm trying to buy and sell based upon relative value. This works well with butterflies because they are a lot more mean reverting. This doesn't work so well on individual calendar spreads because calendar spreads can be very fix price dependent. So I would never be short a 12 month calendar as a value trade. value changes to quickly. Now I might be short the 12 month calendar versus something else.

jokertrader 

Of course if the answer is B, then different calendars have different ATRs and thus quantity might need to be adjusted.. i.e. since a 1 month calendar moves less, i might need more of the 1 month calendars to hedge against a 12 month calendar - right?

Ha. Yes. Well Done.
There's so many different ways of measuring/gauging volatility. ATRs is difficult for spreads and butterflies. Percentage returns don't work either. (If a spread moves from +0.01 to -0.01 is that a -200% move?). So I tend to just look at the standard deviation of absolute price changes.

Something else you can do is calculate hedge delta's for each spread in terms of the outright contract and then maintain a delta hedge that way.

Here is an interesting Twitter thread regarding Shale.

The writer points out that there are differences in quality of OPEC and shale, and the latter will not be a substitute for the former.

Am I on the right track? Find a kink in the curve, then fly chart for that kink going up while the surrounding fly charts are stationary? Just confirming curve trade basics, before I integrate the curve actually moving, scatter plots, etc.

... I guess these one month fly trades must need to be on for weeks...

I guess if I work this out it can be applied other futures.

adam777 

Interesting.
I have a chart that looks a lot like that. You can also see why I try and stay out of the prompt 6... where the fundamentals can strongly take over.

adam777 

While the settlements are relatively accurate there's definitely some noise in there, especally since the CME changed their settlement algo back on November 6th (you can see the increased variability in settlement since then in your chart.) That fly is currently -3/-1 and has been for a while, so those +1 settles are definitely bad settles. But your underlying hypothesis is I believe correct.

Here are my two trades today.

Some background - Prior to arriving here at futures IO, I traded traditional TA using support and resistance, candlesticks, fibs, harmonic patterns and Elliot Wave. Was successful in Forex, but not so much Futures. ( I made the switch to futures when FXCM exited the US market. ) Let’s just say “it’s been a learning curve”.

Well, with Futures IO I have discovered the “next evolution” at least for me – volume! I read Keppler and Stiedlemeyr, and was on my way. Almost on cue Ninja Trader comes out with their order flow + suite and I am off to the races. Ordered NOBS Trading course, makes sense, lots of good stuff. Browsed a lot of the Wyckoff VSA stuff, and read up on Tom Williams and Gavin Holmes. And then, lo and behold, come to find out my harmonic pattern developer neoHarmonics ( Daniel Crystal) - has a Price Action Analyzer (PAA)which is based on market profile and VSA principles.

So I tested the PAA with some market replay on several markets, and with what I have been learning from the other volume stuff, felt confident enough to take it live. Traded CL using 4 range bars and the default settings of the PAA

Notice the VSA signals have confluence with key Fib retracement levels and harmonic patterns. And, at least with CL (4 range, RTH data series) the stopping volume signal has a high % of predicting turning points. I know true DOM watchers like John Grady say “turn off your charts and just watch the DOM”. I am seeing VSA is somewhere in between, but both are clear on one thing – trade with the smart money…and volume = smart money.

Here’s the chart with the trades: