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The CL Crude-analysis Thread


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The CL Crude-analysis Thread

  #2471 (permalink)
 
josh's Avatar
 josh 
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SMCJB View Post
If nothing else it shows how much cheaper it gets to trade when you trade a lot of volume

What a coincidence @ SMCJB - I was wondering about this the other day.

If I may bring equity indices into this -- the IOM (Index and Option Market) seat (B3) from CME last sale was $25K. There are leases currently available for $200/month. The primary deterrent may be the $2000 application fee.

A seat holder qualifies as a professional and thus will incur an additional $100 per month for CME data (add CBOT, etc. if you use that).

Additional costs: $200 for the seat + $100 for market data = $300 / month

MES
With an IOM seat lease, the cost is $0.07 per side, instead of $0.20, and with the removal of the $0.02 per-side NFA fee, yields a $0.15 per-side reduction. That yields a $300 / $0.15 = 2000 contracts, or 1000 R/Ts. If you trade 20 out of 22 trading days, you will need to trade 50 R/Ts per day to break even. If we factor in the $2000 startup cost, that's an additional 6667 RT/s in order to break even, and you'd have to factor that in to your breakeven cost.

ES
With an IOM seat lease, the cost is $0.47 per side, instead of $1.18, and with the removal of the $0.02 per-side NFA fee, yields a $0.73 per-side reduction. That yields a $300 / $0.73 = 411 contracts, or 206 R/Ts. If you trade 20 out of 22 trading days, you will need to trade 11 R/Ts per day to break even. If we factor in the $2000 startup cost, that's an additional 1370 RT/s in order to break even, and you'd have to factor that in to your breakeven cost.

I understand that you will need to pay SE tax as well, which is a big factor.

An 11 R/T per day threshold for long term ES traders seems tiny (a 50 R/T threshold for MES seems even more doable), and like a no-brainer. Why don't more people lease/buy a seat? Is it the $2k application fee? @ addchild I see you are knowledgeable about this, any thoughts?

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  #2472 (permalink)
 
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 wldman 
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I do not trade energy, but...this thread should have been named Oilnalysis. How did you guys miss that one?

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  #2473 (permalink)
 jokertrader 
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This is great analysis.. just a few points

I think the cost indicated of $1.40 are the exchange fees.
Also the $1.40 for exchange seems discounted from the actual CME fee (interesting!!!)
Not sure if members pay NFA fee but non members do of $0.02



Another thing i found different as compared to what stated by TT
The number of included contracts in the transnational model is stated as 300.
As per TT, the number of included contracts is 1333 ($400/$0.30) - another Advantage quirk might be

In the end, as the OP pointed out, seems a no brainer to get a seat when you start trading size

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  #2474 (permalink)
 
SMCJB's Avatar
 SMCJB 
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josh View Post
What a coincidence @ SMCJB - I was wondering about this the other day.

If I may bring equity indices into this -- the IOM (Index and Option Market) seat (B3) from CME last sale was $25K. There are leases currently available for $200/month. The primary deterrent may be the $2000 application fee.

A seat holder qualifies as a professional and thus will incur an additional $100 per month for CME data (add CBOT, etc. if you use that).

Additional costs: $200 for the seat + $100 for market data = $300 / month

MES
With an IOM seat lease, the cost is $0.07 per side, instead of $0.20, and with the removal of the $0.02 per-side NFA fee, yields a $0.15 per-side reduction. That yields a $300 / $0.15 = 2000 contracts, or 1000 R/Ts. If you trade 20 out of 22 trading days, you will need to trade 50 R/Ts per day to break even. If we factor in the $2000 startup cost, that's an additional 6667 RT/s in order to break even, and you'd have to factor that in to your breakeven cost.

ES
With an IOM seat lease, the cost is $0.47 per side, instead of $1.18, and with the removal of the $0.02 per-side NFA fee, yields a $0.73 per-side reduction. That yields a $300 / $0.73 = 411 contracts, or 206 R/Ts. If you trade 20 out of 22 trading days, you will need to trade 11 R/Ts per day to break even. If we factor in the $2000 startup cost, that's an additional 1370 RT/s in order to break even, and you'd have to factor that in to your breakeven cost.

I understand that you will need to pay SE tax as well, which is a big factor.

An 11 R/T per day threshold for long term ES traders seems tiny (a 50 R/T threshold for MES seems even more doable), and like a no-brainer. Why don't more people lease/buy a seat? Is it the $2k application fee? @ addchild I see you are knowledgeable about this, any thoughts?

The big difference between CL and ES is spreads. I think 900 lots of spreads in CL is more attainable (definitely less risk) than 410 ES outrights but maybe that's because I'm a spread trader!

You are correct, there is a registration fee. If you only trade for one month that $2000 fee is huge. At a year it's $166/month. I don't know how long I've had my seat, lets say 10 years. So that's $200/year or $16/month.

The tax question is an interesting one. I've been given (very) differing opinions on that. Is Lease vs Own the same. Are Equities and Futures the same?. The first result of a google search is actually an article discussing the ambiguity of it. It's also complicated by the ACA act and the investment tax. It becomes even more complicated when you start talking about deductions if trading as a business, or when you involve entities. Then there's pensions.


jokertrader View Post
This is great analysis.. just a few points

I think the cost indicated of $1.40 are the exchange fees.
Also the $1.40 for exchange seems discounted from the actual CME fee (interesting!!!)
Not sure if members pay NFA fee but non members do of $0.02



Another thing i found different as compared to what stated by TT
The number of included contracts in the transnational model is stated as 300.
As per TT, the number of included contracts is 1333 ($400/$0.30) - another Advantage quirk might be

In the end, as the OP pointed out, seems a no brainer to get a seat when you start trading size

I thought TT was 300 free and then 30c/side until you hit the cap. If it's a flat 30c/side with a minimum and a cap then it will change those numbers a little, especally if you are less than 6000 lots/month.
You are also right on the $1.40 vs $1.50 Non-member rates. They changed that this year I believe. Since I don't pay non-member rate I have the $1.40 (which it was for years) stuck in my head.

The 55c is the member day trade rate. The 70c rate is the overnight rate. The day rate applies to trades opened and closed in the same day. Obviously if your scalping the prompt month that will apply to you a lot - and make the economics even better. If your trading spreads or swing trading it will apply to you far less, as you will be paying 70c on most.

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  #2475 (permalink)
 addchild 
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josh View Post

An 11 R/T per day threshold for long term ES traders seems tiny (a 50 R/T threshold for MES seems even more doable), and like a no-brainer. Why don't more people lease/buy a seat? Is it the $2k application fee? @ addchild I see you are knowledgeable about this, any thoughts?

I think the 2k fee is a big part of it, but I think most people just believe "I'm different", or "I'll prove I can make money trading without a seat, and then get a seat"

A contributing factor might be that there is almost no information on the pnl margins (dollars per contract) with respect to active trading. New traders think there is some juicy $25 per contract day trading edge out there, and that they just need to learn the right method or stumble upon the right indicator when that just simply doesn't exist. So they are making decisions chasing some myth instead of accepting and trying to capture reality, which in my experience is less than 1/10th that.

In a similar point, I once heard an anecdote of a well known quantitative CTA (who's founder wrote a book about daytrading in the 90's), who were on average sitting on outright risk for a WEEK to average about 1 tick per contract.

Trading is competitive and margins ($/contract) are much more slim than most people expect, so they think of the seat as a luxury rather than necessity.

.
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  #2476 (permalink)
 
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 SMCJB 
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This is an interesting report if your interested in the fundamentals and dynamics behind Brent, WTI and the US export market. Nothing to do with trading though.

Morningstar Research :- American GulfCoast Select Launched As WTI Rival

https://research-reports.morningstarcommodity.com/reportpdf/american-gulfcoast-select-launched-as-wti-rival-FINAL.pdf

TLDR:-
Attempted Coup
Last month a group representing independent producers gave impetus to a new benchmark crude launched by price reporting agencies Argus and Platts. The producer’s goal is to establish trade support for their American GulfCoast Select brand as the default reference for United States light sweet crude exports. To succeed, they must eclipse long-established West Texas Intermediate crude, delivered to Cushing, Oklahoma, the grade underpinning dominant CME Nymex futures. This attempted coup in the crude world order was prompted by two factors. First the lack of a domestic price mechanism for U.S. crude exports led buyers to rely on overseas marker Brent. Second, the domestic WTI market reflects pipeline delivery centered on landlocked Cushing that doesn’t suit overseas buyers. The trigger for this attack on WTI is the Nymex futures price meltdown in April 2020 that battered confidence in the incumbent. This note reviews the new benchmark and challenges to its success.

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  #2477 (permalink)
 
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 SMCJB 
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From John Kemps 'Best in Energy' Monday 20th July.
Well worth subscribing to at http:// eepurl.com/dxTcl1 (space added to stop parsing of link)

DATED BRENT’s five-week calendar spread continues to tighten as traders anticipate a drawdown in stocks, and is now in the 84th percentile for all trading days since 2010, returning to pre-pandemic and pre-volume war levels, up from the 1st percentile in early Apr:

Translation. Physical Oil is quite tight.


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  #2478 (permalink)
 
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 SMCJB 
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Reuters: United States Oil Fund faces possible SEC action: filing

All related to changing their 'investment philosophy' mutiple times in multiple days back when WTI went to $0 (and beyond!)
"The notice, known as a Wells notice, says SEC staff have made a preliminary recommendation against USO, United States Commodity Fund LLC and its chief executive officer, John Love, saying it may have violated securities laws related to misstatements or fraud, according to the filing."

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  #2479 (permalink)
 
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 SMCJB 
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OCTOBER CRUDE OIL MARGINS DOWN $700 EFFECTIVE WEDNESDAY 16TH SEPTEMBER

Maintenance margin as follows (Initial Margins, ie non-member rates will be 110% of these)
Tier 1 / Oct20 decreasing from $6200 to $5500, -$700
Tier 2 / Nov20 decreasing from $5700 to $5000, -$700
Tier 3 / Dec20 decreasing from $5250 to $4600, -$650
Tiers 4 thru 125 also lowered at least $325

https://www.cmegroup.com/notices/clearing/2020/09/Chadv20-361.html

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  #2480 (permalink)
Mozart2112
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CL approaching 42 an all important level for support and resistance. I'm using a daily time frame. My inclination is to put on a short position if price action confirms. Curious how many of you would do this trade or take the other side ? thanks for any feedback.

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