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The CL Crude-analysis Thread


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The CL Crude-analysis Thread

  #2261 (permalink)
 
Pa Dax's Avatar
 Pa Dax 
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SMCJB View Post
Actually I believe the real way to get around it is to trade options. I believe they don't have the same circuit breakers that futures do so even if futures are locked on a limit move the options continue to trade.

Options lose their market makers at such moment. Or the spreads blow up.

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  #2262 (permalink)
 
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I think this was a bigger issue years ago when it wasn't just 2 minutes, but either 30 mins or 60 minutes. You still have the issue would you rather a) do nothing and wait for the market to unlock or b) trade options and pay exorbitant bid-asks.

Interesting Story. Twenty plus years ago NYMEX used to have much tighter trading halt ranges, and longer halts. Back then NYMEX's rules where very member centric. Then Enron came out with Enron Online an internet based trading system. You could literally trade anything on it. CL look-a-like swaps, Weather Derivatives, Coal. Lumber, Plastics etc. (Showing my age here!) It wasn't too long before NYMEX had a price move triggered trading halt. But nothing said Enron Online had to obey NYMEX rules. So while the trading pits in New York were closed, and the locals could do nothing, the entire 'energy industry' continued trading on Enron Online as if nothing had happened. I don't remember the exact timing but it wasn't long after that the NYMEX circuit breaker rules were changed. The locals didn't like being left out in the cold!

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  #2263 (permalink)
 
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 SMCJB 
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xplorer View Post
What kind of doomsday scenario would have to take place for CL to be caught in such a loop though?

I've traded it for almost 3 years, the worst unexpected scenario I witnessed was the one reported on the 14th Feb, which was 46 ticks and then came back up.

I asked another couple of CL traders who traded longer than me and they never experienced anything so severe.

SMCJB, what is your experience on Crude anomalies?

I can't think of any CL examples, but this has happened many times in NG most recently in the last few months. I tried googling to see if there is a list of historical dates when this occurred but couldn't find anything.

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  #2264 (permalink)
 
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SMCJB View Post
Actually I believe the real way to get around it is to trade options. I believe they don't have the same circuit breakers that futures do so even if futures are locked on a limit move the options continue to trade.


Pa Dax View Post
Options lose their market makers at such moment. Or the spreads blow up.

Something else you can do, is trade deferred months. Sure the prompt month contract might be locked limit up, but the 2nd, 3rd, 4th etc might not be. Hence if you need to buy, you could always buy one of those. Obviously leaves you spread risk between whatever you bought and the prompt month, but if you need to get out, it's an option. This doesn't work so well in NG because when moves like this happen it normally is in Nov-Feb and the entire Winter Strip (Nov-Mar) is locked limit and I would not recommend buying April as a hedge against the winter! Also doesn't work in any commodity that doesn't have a liquid forward curve (eg Equity Index's, Currencies to name a few).

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  #2265 (permalink)
 
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SMCJB View Post
Something else you can do, is trade deferred months. Sure the prompt month contract might be locked limit up, but the 2nd, 3rd, 4th etc might not be. Hence if you need to buy, you could always buy one of those. Obviously leaves you spread risk between whatever you bought and the prompt month, but if you need to get out, it's an option. This doesn't work so well in NG because when moves like this happen it normally is in Nov-Feb and the entire Winter Strip (Nov-Mar) is locked limit and I would not recommend buying April as a hedge against the winter! Also doesn't work in any commodity that doesn't have a liquid forward curve (eg Equity Index's, Currencies to name a few).

Very true. In any case - thinking in different scenarios and having them ready is key.

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  #2266 (permalink)
ClearTrades
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Would buying far out of the money call and put options every month to cover both limit up and limit down events (essentially buying insurance for the unknown black swan event) be an economical solution? Or would it just not be worth it?

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  #2267 (permalink)
 
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 Daytona 
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@ClearTrades

The cumulative amount you'd be paying up each time for that 1 in xx chance of it happening, and the trouble of actually doing it, would make it very unlikely to be worth it.

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  #2268 (permalink)
 
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Falling Crude prices = falling inflation = falling yields = good for Treasury futures.
I think Defensive mode is on. Risk off.

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  #2269 (permalink)
 
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ElChacal View Post
Falling Crude prices = falling inflation = falling yields = good for Treasury futures.
I think Defensive mode is on. Risk off.

So people won't say I make up stuff...


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  #2270 (permalink)
 
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IMO 2020 will increase all shipping rates but nobody’s still sure by how much

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