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Although MRCI Seasonal Chart shows that going Long HOM20 - Short HOF20 could be a good spread , the volumes are pretty low.
Is anyone considering this as a possible trade?
Can you help answer these questions from other members on NexusFi?
The daily chart currrently follows the seasonal chart quite nicely, which supports the idea of this spread. COT data is bullish, which does not support.
In case of a significant success regarding the issues with China, HO might be drawn up with CL. This could be a problem for this spread.
I do not intend to trade CL, HO, or RB bullish or bearish, as long as there is no solution of the China / US trading problems. The only trade in these commodities I am interested in is RB-HO.
The below is from my colleague, Mark O'Brien, whom I personally consider an expert when it comes to seasonal spreads:
The spread idea from Moore Research Center, Inc. (MRCI) – buying June ’20 heating oil (N.Y. Harbor ULSD) and selling Jan. ’20 heating oil – can be entered / exited via a spread order without giving up too much. During regular daytime trading hours – say 8:00 A.M. – 4:00 P.M., Central Time – the bid/ask spread is typically anywhere between ±2 and ±10 points wide ($8.40 - $84) with typically ±25-100 bids / asks within 10 tics on both sides of the last trade. Certainly these characteristics rank at the lower end of the liquidity scale, but any decent depth-of-market display will aid in the placement – and execution - of a reasonably-priced limit order.
As for the spread’s attraction, looking at the information MRCI provided, this year it appears to have tracked its 15-yr. seasonal pattern quite well since May right up to MRCI’s 10/22 entry date; it hasn’t traded below it low close of ±Sept. 16 and its -7.92 entry price (based on the spread’s closing price on 10/22) is the 5th lowest of the last 16 years.
And so far, so good. As of yesterday’s close, the spread is up $214.20 having suffered no mor ethan a 1-point ($4.20) set-back since 10/22.
Sorry for long disclaimer below but it is necessary....
Seasonal tendencies are a composite of some of the more consistent commodities futures seasonals that have occurred over the past 15 years. There are usually underlying fundamental circumstances that occur annually that tend to cause the futures markets to react in a similar directional manner during a certain calendar period of the year. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past or will in the future achieve profits utilizing these strategies. No representation is being made that that price patterns will recur in the future. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. Results not adjusted for commission and slippage.
PM with any questions about Cannon Trading (800) 454-9572 (310) 859-9572. Trading commodity futures, forex and options involves substantial risk of loss. The recommendations contained in this post are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results.
