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is it really worth it?
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is it really worth it?

  #51 (permalink)
Market Wizard
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Fat Tails View Post
Who is the speculator?

The fund A holds treasury securities and sells a naked put, while the fund B holds a stock and sells a covered call. If I follow your argument, A is a speculator and B is an investor.

Unfortunately their positions are identical until the options expire. It is a fairy tale that writing covered calls is less risky than writing naked puts. The risk is the same. If you write a covered call, your margin is depositied with stocks, if you write a naked put, it is deposited with treasury securities that the broker holds for you.

The only difference between investors and speculators is the holding time

Both the investor and the speculator want to make money on their investments. A fund switches in and out of liquid securities on behalf of the investors. The fund is speculating with the money of the investors. So it is a machine to transform investors into speculators?

OK. I understand what you're saying.

you're saying that you are a speculator and when you play soccer, you practice some new kind of fouls to have an edge.

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  #52 (permalink)
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Silvester17 View Post
OK. I understand what you're saying.

you're saying that you are a speculator and when you play soccer, you practice some new kind of fouls to have an edge.

Trading futures and soccer are both zero sum games, one party wins, the other loses.

However, only speculators participate in soccer, as there is no need for hedging exposure. That is one of the main reasons I like it.

Holding times are usually just a few seconds. Fouls only occur if one of the players gets too heavily invested. The regulators fine the players after each of those investments, the rest of the time they try to catch up with the action.


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  #53 (permalink)
Fortitudo et Honor
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any time you make a decision based on anticipation or what might happen in the future, you are speculating.

I don't care if you're trying to flip a house, if you're getting a business loan because you think you have a profitable idea, if you're dumping your girlfriend because you're tired of missing out on all the hot chicks you'll get in the future.....whatever.

My overall point was that speculators get a bad rap, when in truth, any business venture is speculation.

Even an ironclad contract, bound by law is in some ways, speculation (people end up in court over contract disputes all the time).

The thing people have to understand is that speculation and risk (to varying degrees) go hand in hand.

Usury was originally considered unethical and evil. People then realized that the lender takes on risk and therefore is entitled to fair and just compensation for that risk (furthermore, if you don't like people who charge interest...don't borrow money).

If find it quite odd, that someone who works at a bank is seen as respectable but if you introduce yourself as a day trader, it comes with any number of predetermined opinions...many of them low.

Speculators are no more to blame with high commodities prices than prima donna athletes who are seemingly overpaid now. If people are willing to pay the ticket prices...then it's fair market value.

I do agree that speculators help fuel the swings we see, however, it's short lived as we've seen just about everywhere that any market that's rampant with speculation cannot sustain unreasonable levels for very long, eventually, the market returns to the physical underlying reality.

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  #54 (permalink)
Market Wizard
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now here's something that would make sense.

A car that runs 200 miles on compressed air

that would not only solve the problem with high energy cost, it would also help with the environment.

ps just wondering if the "so much needed speculators" would still trade crude the way they do it now.

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  #55 (permalink)
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Silvester17 View Post
now here's something that would make sense.

A car that runs 200 miles on compressed air

that would not only solve the problem with high energy cost, it would also help with the environment.

ps just wondering if the "so much needed speculators" would still trade crude the way they do it now.

That compressed air car is an old concept. The question is really how much energy you can store in a pressurized bottle of air. Maybe it will be enough to drive to the next shop and back, but it is not obvious that this will be practical. Also this is no source of energy, it is just a storage device such as a battery.

Often people talk about a hydrogen economy, telling me that hydrogen is freely available everywhere, as there is lots of water on the planet. This is true, but you first have to produce the hydrogen from water, and this requires energy. Hydrogen is then used to store that energy and to transport it from A to B. Not sure that this is a good idea. Chemically, hydrogen is not easy to transport, actually each vessel of hydrogen is a small bomb.

So a battery is probably superior to hydrogen as a storage device. It is also the easiest solution, as the infrastructure already exists. Just need to reduce the weight of the cars from 1.5 to half a ton per vehicle.

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  #56 (permalink)
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Fat Tails View Post
Maybe it will be enough to drive to the next shop and back, but it is not obvious that this will be practical.

if you eat some chili with lots of onions, you should be able to make it.

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  #57 (permalink)
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This car exists, has been developped by Tata.

World's First Air-Powered Car: Zero Emissions by Next Summer - Popular Mechanics

Main problem: Air is an inefficient way to store energy. The energy content of pressurized air is about 100 times lower than gasoline, so the car needs

-> to have a huge tank (100 gallons)
-> reduced weight
-> and will not allow you to drive very far

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  #58 (permalink)
Market Wizard
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those links were posted by kbit:

WTI April Rollover Cycle to Test Oil Speculators | Oil Price.com

http://oilprice.com/Energy/Gas-Prices/Pinched-By-$4-Gasoline-Blame-The-Big-Banks.html

couldn't agree more. especially like the las vegas casino part. but of course we need the speculators for a healthy market. right???

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  #59 (permalink)
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Silvester17 View Post
those links were posted by kbit:

WTI April Rollover Cycle to Test Oil Speculators | Oil Price.com

http://oilprice.com/Energy/Gas-Prices/Pinched-By-$4-Gasoline-Blame-The-Big-Banks.html

couldn't agree more. especially like the las vegas casino part. but of course we need the speculators for a healthy market. right???


It is not the speculators, but stupid contract specifications

Yes, we need the speculators for a healthy market. This is quite a different problem, which can be tracked to a technical error. This is the mistake, which is known for years:

The world's largest crude oil contract with a daily turnover of 300,000 contracts (equivalent $ 30 billion per day) has a delivery point in Cushing, Oklahoma, which is the middle of nowhere. This is probably the most stupid contract specification ever.

The very purpose of a futures contract is to allow market participants, who have a physical position to hedge that position or future changes expected as a result of production or consumption. The link between the forward markets and the underlying cash markets is established by the physical delivery at expiry.

Now, if you select a location for physically delivery, where you cannot take delivery, because there is no storage place, and where you cannot deliver, because there is additional pipeline transportation cost and no pipeline capacity, the whole idea of a deliverable forward or futures contract is led ad absurdum.


The Cushing Contango

The specific situation in Cushing, forces holders of long positions to liquidate them, as no physical arbitrageurs will help them. In fact physical arbitrage is made impossible by the choice of the delivery location. This drives the prices of the old front month down and the price for the next front month up. This phenomenon is called the Cushing contango.

To prove the impact of that erroneous delivery place, you can compare the rolling losses that a long only fund has to support between the Brent contract (IPE London) and the NYMEX. I have already explained this problem in another thread, so I do not need to repeat it here:

https://futures.io/commodities-futures-trading/5213-accurate-cl-crude-oil-future...ted-chart.html#post58234

For an alternative model for settling crude futures see IPE Europe. The Brent Crude contract can either be cash settled based on an index or EFP settled, see link below:

https://www.theice.com/publicdocs/futures/ICE_Brent_EFP_Explained.pdf


Again Speculators are Blamed for Errors of Regulators

The choice of Cushing as a delivery place is completely unacceptable. It just again shows that regulators (CFTC) are still in hibernation to which they have been lulled by the repeated singing of the song of the free self-regulating markets. Markets need rules, such as a soccer game needs rules. Do not complain if you watch a soccer game and there are no scores because somebody was allowed to fill up the goal with balls prior to the start of the game.

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  #60 (permalink)
Market Wizard
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Fat Tails View Post
It is not the speculators, but stupid contract specifications

Yes, we need the speculators for a healthy market. This is quite a different problem, which can be tracked to a technical error. This is the mistake, which is known for years:

The world's largest crude oil contract with a daily turnover of 300,000 contracts (equivalent $ 30 billion per day) has a delivery point in Cushing, Oklahoma, which is the middle of nowhere. This is probably the most stupid contract specification ever.

The very purpose of a futures contract is to allow market participants, who have a physical position to hedge that position or future changes expected as a result of production or consumption. The link between the forward markets and the underlying cash markets is established by the physical delivery at expiry.

Now, if you select a location for physically delivery, where you cannot take delivery, because there is no storage place, and where you cannot deliver, because there is additional pipeline transportation cost and no pipeline capacity, the whole idea of a deliverable forward or futures contract is led ad absurdum.


The Cushing Contango

The specific situation in Cushing, forces holders of long positions to liquidate them, as no physical arbitrageurs will help them. In fact physical arbitrage is made impossible by the choice of the delivery location. This drives the prices of the old front month down and the price for the next front month up. This phenomenon is called the Cushing contango.

To prove the impact of that erroneous delivery place, you can compare the rolling losses that a long only fund has to support between the Brent contract (IPE London) and the NYMEX. I have already explained this problem in another thread, so I do not need to repeat it here:

https://futures.io/commodities-futures-trading/5213-accurate-cl-crude-oil-future...ted-chart.html#post58234

For an alternative model for settling crude futures see IPE Europe. The Brent Crude contract can either be cash settled based on an index or EFP settled, see link below:

https://www.theice.com/publicdocs/futures/ICE_Brent_EFP_Explained.pdf


Again Speculators are Blamed for Errors of Regulators

The choice of Cushing as a delivery place is completely unacceptable. It just again shows that regulators (CFTC) are still in hibernation to which they have been lulled by the repeated singing of the song of the free self-regulating markets. Markets need rules, such as a soccer game needs rules. Do not complain if you watch a soccer game and there are no scores because somebody was allowed to fill up the goal with balls prior to the start of the game.

now let me ask you this: how many speculators do you think have an interest in a physical delivery? my guess is less than 10%, to be very conservative. so I'm fairly certain the same problem would occur if the delivery place would be new york, london or on the moon.

but I do agree about the errors of regulators. they need to get rid of some speculators in order to have a healthy market again.

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