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Two hedge ratios for crush spread


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Two hedge ratios for crush spread

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  #1 (permalink)
opi5981
Beijing,China
 
 
Posts: 20 since Sep 2021
Thanks: 3 given, 9 received

I found occasional inconsistencies when calculating the two proportions.
The following three spread calculation methods are:
1: 2.2*ZMF23+11*ZLF23-ZSF23
2: 11*100*ZMF23+9*600*ZLF23-10*50*ZSF23
(11:9:10 Calculate the value of the contract combination)
3: 100*ZMF23+600*ZLF23-50*ZSF23
(1:1:1 to calculate the value of the contract combination)

https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-crush-spreads.html
CME informs that the 11:9:10 spread is more accurate, but the deviation from the theoretical formula of 0.022\0.11 in the daily chart comparison is much larger than the 1:1:1 spread.So which scale should I use to be more representative?
Because I'm currently using sc, I can't see the SI spread provided by CME, can someone provide me with a screenshot of the price chart of the SI spread tool and a screenshot of the DOM of the SI, I want to confirm whether my calculation is correct. By my calculations, the current SI price should be around 172 (at the current posting time).
I have another question, where can I check SPAN margin requirements for SI spreads?

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 SMCJB 
Legendary Market Wizard
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11:9:10 spread is more accurate than 1:1:1 when it comes to tracking the actual profitability of the crush process, but 1:1:1 is a much simpler approximation.

Globex actually has exchange spreads where you can trade things like this spread avoiding all the legging risk. For the crush spread the symbol is SOM. So buying 1 SOM will mean you are actually buying 11 Soybean Meal, buying 9 Soybean Oil and selling 10 Soybean all in one trade. I'm very surprised that they don't also have a 1:1:1 exchange spread.

https://www.cmegroup.com/education/files/soybean-crush-reference-guide.pdf

Regarding margin, the link below shows that the margin credit for the 11:9:10 is 88% meaning that the margin required for the spread is only 12% of what the margin would be for all the legs added together. Although not listed it appears the margin credit for a 1:1:1 spread is 86.3%,

https://www.cmegroup.com/markets/agriculture/oilseeds/soybean-crush.margins.html#marginsTab=INTER&pageNumber=1&sector=AGRICULTURE&clearingCode=06

CME has a great online margin spread calculator. You have to sign up for it (it is free) but well worth it for questions like this. Here is an example of what we are talking about. Worth noting is how much smaller the margin requirement is for the 1:1:1 vs the 11:9:10 which if you have a smaller account could be important.


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 SMCJB 
Legendary Market Wizard
Houston, TX
 
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Margin... those are probably member rates, so non-members will be 10% higher

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opi5981
Beijing,China
 
 
Posts: 20 since Sep 2021
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Thank you very much for your reply. Does the membership margin of the exchange mean that you need to have a trading seat on CME? Is the SPAN margin automatically applied or do I need to apply to FCM to use it?
SMCJB View Post
Margin... those are probably member rates, so non-members will be 10% higher


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 SMCJB 
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: TT and Stellar
Broker: Primary Advantage Futures. Also ED&F and Tradestation
Trading: Primarily Energy but also a little GE, SI, Bitcoin & Ether
 
Posts: 4,661 since Dec 2013
Thanks: 3,981 given, 9,340 received

The online SPAN calculator is free, you just need a CME login, which you can sign up for.

You first setup a portfolio (only important thing is the name of the portfolio, you can put anything in firm and account fields). Then when portfolio is setup just add trades. I search under the Globex symbol box to the right, add position at bottom right, then add to portfolio.

Membership to an exchange gives you both reduced trading fees and reduced margin requirements. Note that their are different memberships - it's not just one. So I have a NYMEX membership so I get reduced rates and margin on NYMEX Products (Crude, NatGas etc) but I pay non-member rates on the CME exchanges COMEX, CBOT, CME etc.

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