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Energies
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Created: by myrrdin Attachments:6

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Energies

  #31 (permalink)
Trading Apprentice
London, UK
 
Trading Experience: Beginner
Platform: IB (TWS), DeCarley(Zaner)
Favorite Futures: CL, GC, meats, grains
 
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myrrdin View Post
In the energies I currently hold the following positions:

RBG-HOG
This trade is favored by the seasonal charts. I was stopped out of this trade with a loss some time ago, and re-entered yesterday. This is one of my most profitable trades over the years, although it is difficult to find the best time to enter.

RBJ-RBF, HOH-HOZ
Both trades are suggested by MRCI. Especially the chart for the HO spread follows the seasonal chart nicely since April 2018.

I also have a couple of these open.

RBG-HOG - opened on 01-Oct, and showing a sizeable loss currently. I may add to this position.

HOH-HOZ - opened on 31-Aug, and showing a profit. This should come alive in the next month if the seasonal
pattern is followed.


In addition to the above:
I have the NGZ-NGK position (mentioned previously), which is showing a big loss, but I want to hold on, maybe as a
test of endurance and learning opportunity.

I have the CLG-CLF, which was opened in Jul. Have closed half position for good profit, and will let the rest run a
bit more.


Last edited by zxcv64; October 15th, 2018 at 06:08 PM.
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  #32 (permalink)
Trading Apprentice
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Bumping a thread here with a question regarding exchange traded spreads you guys might be able to answer.

In some exchange traded spreads the liquidity is good but the underlying contracts are very illiquid. So the P&L is showing big swings even if the exchange traded spread hasn't even moved.
But is this considered to be actual unrealized drawdown? Could there be problem with margin and such?

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  #33 (permalink)
Market Wizard
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smajdah View Post
In some exchange traded spreads the liquidity is good but the underlying contracts are very illiquid. So the P&L is showing big swings even if the exchange traded spread hasn't even moved.

There are lots of spreads where this is the case. For example even right now, 2 hours before RTH, the CLX20/CLZ20 spread is just two ticks wide. CLX20 as an outright though is 99c wide - and hasn't traded - and may not trade all day - while CLZ20 is 3c wide. Most trading front ends, and risk systems are unable to show PnL 'on a spread basis' and as such will mark-to-market your spreads as individual outright positions. This can create phantom/unreal PnL scenarios when you have situations like this with one or both legs of the spread are illiquid as outrights. Your end of day PnL should be correct though.

smajdah View Post
But is this considered to be actual unrealized drawdown?

No. it's an aberation caused by weaknesses in the exchange matching engine's. You will need to make sure that your trading system doesn't view this as real though and stop you out based upon outright leg PnLs and not the actual spread PnL.

smajdah View Post
Could there be problem with margin and such?

Re: Margin Requirements - the exchange and most brokers use the SPAN system to calculate margin. SPAN gives you a significant discount for spreads versus outrights and this shouldn't be a problem.
Re: Available/Excess Margin - Excess margin is simply (Money in your account) - (Margin requirement of open positions) +/- (PnL of open positions). The problem is, intra-day as you have highlighted (PnL of open positions) can be extremely inaccurate for some spread positions. So yes you could/will end up in the situation that your intra-day margin calculation is completely wrong, and if your broker is bad enough, could lead to unwanted and unnecessary liquidations.

Just curious what are you trading where this is a potential problem?

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  #34 (permalink)
Elite Member
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And just to add are you looking at the exchange spread on a DOM and what platform/FCM


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  #35 (permalink)
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SMCJB View Post
There are lots of spreads where this is the case. For example even right now, 2 hours before RTH, the CLX20/CLZ20 spread is just two ticks wide. CLX20 as an outright though is 99c wide - and hasn't traded - and may not trade all day - while CLZ20 is 3c wide. Most trading front ends, and risk systems are unable to show PnL 'on a spread basis' and as such will mark-to-market your spreads as individual outright positions. This can create phantom/unreal PnL scenarios when you have situations like this with one or both legs of the spread are illiquid as outrights. Your end of day PnL should be correct though.

No. it's an aberation caused by weaknesses in the exchange matching engine's. You will need to make sure that your trading system doesn't view this as real though and stop you out based upon outright leg PnLs and not the actual spread PnL.

Re: Margin Requirements - the exchange and most brokers use the SPAN system to calculate margin. SPAN gives you a significant discount for spreads versus outrights and this shouldn't be a problem.
Re: Available/Excess Margin - Excess margin is simply (Money in your account) - (Margin requirement of open positions) +/- (PnL of open positions). The problem is, intra-day as you have highlighted (PnL of open positions) can be extremely inaccurate for some spread positions. So yes you could/will end up in the situation that your intra-day margin calculation is completely wrong, and if your broker is bad enough, could lead to unwanted and unnecessary liquidations.

Just curious what are you trading where this is a potential problem?


jokertrader View Post
And just to add are you looking at the exchange spread on a DOM and what platform/FCM


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Thanks for the help guys!

I have seen this in several different products in grains and energy so it wasn't a specific product. It's not seen in the exchange traded spread DOM i think, but only when i look at open P&L on the trading account or underlying positions.
I'm not having a problem with this right now, but i'll check with the broker and such to make sure. I asked mostly as a precaution and for "future reference". Since it would feel quite tough to make something from spread trading if you would need a huge account to trade small positions because of those "phantom/unreal PnL scenarios".

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  #36 (permalink)
Market Wizard
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smajdah
Since it would feel quite tough to make something from spread trading if you would need a huge account to trade small positions because of those "phantom/unreal PnL scenarios".

It really depends what 'months' or products you are talking about. In my example I picked the CL X20/Z20 spread for a reason. In Crude Oil the matching engine calculates implied prices for the first 12 months, and for the first 36 months in the M and Z cycle only. So today, early Nov'18, the matching engine is calculating implied prices for CLZ8, CLF9, G9 ... V9, CLX9, CLZ9, CLM0, CLZ0 and CLM1. So if your spread is between any of those 16 contracts the predicament we are talking about will NOT apply. So you could be trading something complicated like a CLM0/Z0/M1 butterfly and your P&L should always be reasonably accurate. In my example though CL X0 is not being implied by the matching engine and does not trade as an outright very often, CL Z0 is implied though, and trades regularly as an outright, hence creating inaccurate PnL for the spread.

If your a smaller trader, who doesn't have a big account, my advice (at least with crude) would be to stick to the liquid spreads, that fall in the implication ranges. If you have an strong opinion on the CLZ9-CLZ0 spread go for it, but I wouldn't be trading the CLQ0-CLU0 spread for many reasons not limited to the PnL issue that you identified.

Also as already mentioned a lot of this will come down to your broker. I regularly have 'implied losses' in my account greater than the excess margin available, but my broker knows this is phantom, and created by the situations discussed. But I've also been with my broker for over 9 years.

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  #37 (permalink)
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SMCJB View Post
It really depends what 'months' or products you are talking about. In my example I picked the CL X20/Z20 spread for a reason. In Crude Oil the matching engine calculates implied prices for the first 12 months, and for the first 36 months in the M and Z cycle only. So today, early Nov'18, the matching engine is calculating implied prices for CLZ8, CLF9, G9 ... V9, CLX9, CLZ9, CLM0, CLZ0 and CLM1. So if your spread is between any of those 16 contracts the predicament we are talking about will NOT apply. So you could be trading something complicated like a CLM0/Z0/M1 butterfly and your P&L should always be reasonably accurate. In my example though CL X0 is not being implied by the matching engine and does not trade as an outright very often, CL Z0 is implied though, and trades regularly as an outright, hence creating inaccurate PnL for the spread.

If your a smaller trader, who doesn't have a big account, my advice (at least with crude) would be to stick to the liquid spreads, that fall in the implication ranges. If you have an strong opinion on the CLZ9-CLZ0 spread go for it, but I wouldn't be trading the CLQ0-CLU0 spread for many reasons not limited to the PnL issue that you identified.

Also as already mentioned a lot of this will come down to your broker. I regularly have 'implied losses' in my account greater than the excess margin available, but my broker knows this is phantom, and created by the situations discussed. But I've also been with my broker for over 9 years.

I see, thanks again for the help. Didn't know about this at all, how do i find out about this stuff in other products (grains and energy)?

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  #38 (permalink)
Market Wizard
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smajdah View Post
I see, thanks again for the help. Didn't know about this at all, how do i find out about this stuff in other products (grains and energy)?

http://www.cmegroup.com/globex/files/globex-product-reference-sheet.xls

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  #39 (permalink)
Market Wizard
Linz Austria
 
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According to seasonal charts, the RB-HO spread should be interesting at this time of the year.

I was stopped out of this trade twice recently with a loss.

The current cold weather made the spread cheaper, but the extremely cold weather will end some day. In recent days it looks to me as if the spread would find a bottom.

The spread RBK-HOK currently notes about -26 to -27 . Whenever it was below -10 since the eighties it moved up to above +10 later. This corresponds to a profit of more than 20 or more than 8,400 USD.

Any comments from the energy experts ?

Best regards, Myrrdin


Last edited by myrrdin; November 13th, 2018 at 02:49 PM.
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  #40 (permalink)
Market Wizard
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Head spinning.
Crude down $20 (~27%) in last 5 weeks. Obviously RB and HO both refined from CL.
Crude Stocks are now building quite fast after falling for 18 months. Gasoline stocks are unseasonably high, while HO stocks are unseasonably low.
NG up $1.25 (~45%) in last 6 weeks and competes with HO as a heating fuel.

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