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The CL Crude-analysis Thread
Started:December 17th, 2014 (02:33 PM) by tturner86 Views / Replies:125,793 / 1,754
Last Reply:December 4th, 2016 (01:02 AM) Attachments:450

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The CL Crude-analysis Thread

Old March 22nd, 2015, 09:49 PM   #801 (permalink)
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rani View Post
I've switched to trading CL options on higher timeframes some time ago already. I find it harder and harder to achieve consistent results by daytrading CL on something like 3 or 5 min chart with reasonable money management.

I've found a 512 tick heiken ashi chart makes daytrading CL a bit less visually vulgar, which is one of the ways in which it can throw me for a loop. I do my longer term technical analysis on day charts of varying lengths of time, looking for key levels for the next trading day. Then I actually trade off a tick chart and watch the DOM when I get close to my expected range in either directions.

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Old March 23rd, 2015, 01:44 AM   #802 (permalink)
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Thanks @wirechild, excellent post.

To focus on a couple of points you made

wirechild View Post
There is a ton of information out there that leads me to believe that it will be very difficult to get back above $60 for a really long time. Does this mean there is more downside, not really. We could trade in the $40-$60 range for a couple years.

All around the world storage is at or near an all time high. There is a cost to storage though and that cost appears to be increasing. any significant uptick in price is likely to be met with unloading of the storage.

The storage situation and the relationship to prompt month continues to baffle me. We are awsh in crude oil, but as we saw in the last week, based upon the strength of the Apr-May spread, people would rather own April than not own it. But if we have so much crude why? And if storage is really going to fill even more, as fundamentals predict, won't May be even cheaper.


wirechild View Post
Capitulation hasn't happened yet. Until we see a lot of companies going under or defaulting on their debt then there is not a driving force to lower production. Most estimates I have seen show that many of the at risk US companies are hedged enough through the end of this year or next year to survive the lower prices. Many banks are already starting to work with them to restructure the debt to get them a little further down the road. I suspect we start seeing more M&A later this year that could shake up this a little bit.

People need to remember that there is a significant difference between the cost of getting a barrel of oil (or an MMBtu of NG) out of the ground, and the cost to service debt. Debt at this point is a sunk cost and does not effect incremental production costs. I would also agree that I hear many US producers are hedged at least through the end of 2016, so the drop in prices is not really effecting them at all yet and from an earnings stand point will not for many months to come.

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Old March 23rd, 2015, 11:42 AM   #803 (permalink)
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Carved out 18 ticks this morning. Got short around 47.10, covered at about 46.92. Man this is slow. Nothing to be had but scalps.

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Old March 23rd, 2015, 12:18 PM   #804 (permalink)
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Trading Oil with Calendar Spreads

Tastytrade had an interesting video last friday about trading calendar spreads on oil futures:

Quoting 
With recent activity in Crude Oil, this commodity is allowing retail traders more opportunities due to it's liquidity and volatility. Today, tastytrade's Tom Sosnoff and Tony Battista are joined by Pete Mulmat of CME Group. The gentlemen discuss what backwardation and contango is, and how to apply the concepts when looking at Futures curves. The steepness of the curve can provide trading opportunities via Calendar Spreads.


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Old March 23rd, 2015, 01:47 PM   #805 (permalink)
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rmejia View Post
Tastytrade had an interesting video last friday about trading calendar spreads on oil futures:


Interestiing video Thank You.
If anybody watch's it and has questions, post them here and I will do my best to answer them (I trade a lot of CL spreads).
It was kind of funny seeing somebody as accomplished and revered as Tom Sosnoff get confused about the naming, and sign on the spread.

For what it's worth Pete Mulmat is obviously a CME Employee. While he admits that Brent is a more important benchmark than WTI, he says that WTI is the largest energy contract on the CME. While he is not lieing saying that, he is hiding the fact that the largest energy contract in the world is actually ICE's Brent Crude contract (ICE bought the IPE many years ago). If you take a look at Brent, the contango is not nearly as steep as it is in WTI, illustrating the difference in world crude fundamentals as opposed to Oklahoma's fundamental's!

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Old March 23rd, 2015, 02:17 PM   #806 (permalink)
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Trading

Hi SMCJB,

Why somebody should look into trading spreads vs outright futures? The presenter in the TastyTrade video mentioned CL futures margin being $5600 vs very low for spread. For me this is not good enough reason. I am sure there are many more benefits for trading spread.



My posts are not meant to give financial advice neither do they imply that my method is special. "THIS IS WHAT I COULD BE IF I HAD A TOTALLY CARE FREE STATE OF MIND DURING TRADING" Mark Douglas.
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Old March 23rd, 2015, 02:37 PM   #807 (permalink)
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Hi SMCJB,

I will add to the mfbreakout's question couple more:
- what is the difference in trading CL spreads on Nymex vs. WTI or Brent spreads on ICE?
- do you trade exchange specified calendar spreads or synthetic spreads? Seeing you are using X-Trader I would expect you trade synthetics and working the legs, correct?
- what is your timeframe in trading spreads?
- is there any advantage in trading complex strategies (i.e. butterflies) vs. calendar spreads?
- is it possible to trade spreads technically the same way as the outrights or they are more fundamentally driven contracts?

Thank you in advance for your reply


Last edited by rani; March 23rd, 2015 at 02:59 PM.
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Old March 24th, 2015, 12:52 AM   #808 (permalink)
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SMCJB View Post
If anybody watch's it and has questions, post them here and I will do my best to answer them (I trade a lot of CL spreads).

Me and my big mouth. Well here goes...

Let me start by saying I saw A Guide to Spread Trading Futures (ebook) by Rajen Kapadia* discussed on this forum somewhere. It's an ebook available several places (eg Amazon) for about $3! If you really know very little (or nothing) about futures spreads, futures butterflied then this will get you started. It explains poisitioning sizing, spread ratio's etc etc. The writer obviously uses TTs XTrader as many of the screen shots are from that software. It's not going to make you a spread trading expert but for $3 it's decent value.

While obviously a completely different market, with completely different fundamentals there's lots of literature out there that discuss's the Eurodollar ("GE") curve. The Eurodollar future is probably the biggest futures contract that you've never heard of trading literally several million contracts a day. It's interesting to our discussion here because Globex has not only Butterfly's (1-2-1) but also Double Butterfly's (1-3-3-1) for trading as exchange listed spreads, with FULL implication.

*I have no relation or connection to Rajen Kapadia

mfbreakout View Post
Why somebody should look into trading spreads vs outright futures? The presenter in the TastyTrade video mentioned CL futures margin being $5600 vs very low for spread. For me this is not good enough reason. I am sure there are many more benefits for trading spread.

I agree that the reduced margin does not seem like a good reason in itself to trade spreads IF you are really trying to trade CL direction-ally. The charts below show the outright price and the daily change of CLJ5 plotted against the CLJ5/K5 spread. As you can see the price movement in the spread is not a good proxy for price movement of the outright at all.
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I personally think that you shouldn't view trading CL spreads as trading a less leveraged outright. I think spreads should in many ways be treated as their own market. Sure the fundamentals that effect the outrights effect spreads as well, but as illustrated above they are not always highly correlated.

Before you start trading spreads you need to start thinking about prices as a forward curve/term structure. When you trade a spread you a trade a differential between two different contract months. For lack of a better expression, trading a spread is like trading the 1st derivative of price. Spreads/The Curve/Structure are effected by many things. Obviously the closer to the front of the curve you get the more immediate fundamentals have an impact. Further back in the curve deal flow/hedging can cause some significant distortions - often temporary. This post here and it's follow up here illustrate what I believe was a temporary curve distortion. While I didn't have this exact trade on, I had something very similar.

Mentioning Eurodollar's again CME's recent education piece "CURVATURE TRADING APPLICATIONS Application #1: DIRECTIONAL TRADING" By Joseph Choi is an interesting introduction on how to start thinking about the forward curve as something other than one price, and what spreads and fly's can tell you about the markets expectations.

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There are many ways you can approach spread trading, with I suspect varying degrees of success. Fundamentals, Technicals, are obvious but many of the others are very quantitative and statistical. Hedge Ratio's, Relative Value, Regression's, Butterflys, Double Fly's, Mean Reversion etc etc.

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


rani View Post
I will add to the mfbreakout's question couple more:
- what is the difference in trading CL spreads on Nymex vs. WTI or Brent spreads on ICE?

NYMEX CL is a physically delivered contract while ICE WTI is a financially settled 'copy cat' contract based upon the NYMEX CL settlement price. Hence if you trade ICE WTI you do not have the physical delivery option that you do on NYMEX. Also there is more CL or WTI liquidity on NYMEX hence if you want to trade WTI I would suggest you do it on NYMEX,

Brent is a completely different commodity to WTI. Unbeknownst to most the NYMEX Crude Contract ISN'T a WTI contract, it's actually Light Sweet Crude contract. There are long list of crudes that you can deliver into the contract at varying price differentials. It get's called WTI though because that is the benchmark crude for the differentials and the crude that in reality is nearly always delivered. Similarly what we call Brent is not actually Brent any more. Brent production has declined to the point that have had to include other similar North Sea crudes. The Brent Index is now actually a BFOE index representing Brent, Forties, Oseberg & Ekofisk. (Brent in itself is actually 'Brent Blend' as it's a mixture of several different close proximity North Sea Fields.)

NYMEX's WTI contract calls for delivery to Cushing Ok. Many years ago mid-america was short crude, and hence WTI was for decades the most (or at least one of the most expensive) crudes in the world. The US imported crude and shipped it up pipelines into the midwest etc. Hence WTI regularly priced at Brent + Freight +Pipeline costs. Obviously with the change in US production, the addition of new pipelines, and the reversing of others (so crude can now flow from the Midwest to the Gulf Coast) things now look very different. Brent on the other hand is still what is called the "swing barrel" and the World Benchmark. North Sea, West Africa, Mediterranean crudes, all price relative to Brent and and flow/move to what ever area of the world has the highest prices to attract it.

ICE Brent is a financially settled vs a Platt's index. NYMEX Brent while being the 'copy cat' is also financially settled vs the same index so they are basically identical. There is more Brent liquidity on ICE though, so if you want to trade Brent do it on ICE.

Both exchanges offer exchange traded spreads, but ICE's implication is more advanced, but that doesn't make up for the drop in liquidity in WTI to justify it.

rani View Post
- do you trade exchange specified calendar spreads or synthetic spreads? Seeing you are using X-Trader I would expect you trade synthetics and working the legs, correct?

Unless your trying to execute spreads outside of the implication range you will rarely if ever get better fills by trying to leg spreads as opposed to trading the exchange listed spreads. Where X-Trader comes in useful is if you are trying to trade Condors or Butterfly's. While CME does list CL Butterfly's the implication is switched off, hence the best price available is often a price at which a HFT market maker can arb you for a tick by legging the butterfly himself.

If spread A is 10/11 and spread B is 8/9 then the AB Butterfly on legs is 1/3 (ie S 10s, B 9s =1 and B 11s, S 8s = 3). I find that using XTrader's autospreader it is quite easy to buy or sell 2's.

rani View Post
- what is your timeframe in trading spreads?

Most of my spreads are held for anywhere from hours to months.

rani View Post
- is there any advantage in trading complex strategies (i.e. butterflies) vs. calendar spreads?

Depends what your goal is. As I said earlier I don't think people should look at trading CL spreads as the same thing as trading CL outrights. Same applies for more complex strategies like Butterflies. Just like spreads can be thought of as the first derivative of price, Butterflies can be thought of as the second derivative of price. When you trade spreads you are trading the steepness of the curve. When you trade Butterflies you are trading the shape of the curve. The problem with trading Fly's, Double Fly's, Condor's etc is that they get very commission expensive unless you have very aggressive fees.

rani View Post
- is it possible to trade spreads technically the same way as the outrights or they are more fundamentally driven contracts?

I know there are many people who trade spreads both technically and fundamentally.


Last edited by SMCJB; March 24th, 2015 at 09:11 AM. Reason: Fixed Missing Chart
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Old March 24th, 2015, 09:06 AM   #809 (permalink)
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SMCJB View Post
Me and my big mouth. Well here goes...

Hi SMCJB,

BIG thank you for your "big mouth" response

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Old March 24th, 2015, 09:13 AM   #810 (permalink)
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rani View Post
Hi SMCJB,

BIG thank you for your "big mouth" response

Thanks. FYI I fixed the missing chart in the post

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