1. A diversified portfolio includes puts and calls for the same / for related commodities. One of them should make profit.
2. The correlation between different commodities during a market crash is weaker than the correlation between
different stocks / indices. Regarding demand: There are "luxury" products, eg. Cocoa or Coffee, which might show a significantly reduced demand during a crash. And there are things you need, eg. Wheat or Rice, where demand should be more stable. Demand for Gold often rises during a market crash. Regarding supply: Supply of the growing commodities depends mainly on the weather, which does not correlate with a market crash. Rain, that is beneficial for one commodity, might be a problem for another one.
3. Some commodities correlate closely with the US$, as they are exported / imported from / to the US (eg. Crude Oil, Wheat), others do not (eg. Natural Gas). In my opinion this is the major problem for the diversification of a portfolio.
Clump risk still is a problem for commoditiy traders, but I consider it to be smaller than for traders of stocks / indices.
During a severe crash, eg. September 2008 until February 2009, it is a good idea to be careful regarding all trading activities.
Best regards, Myrrdin
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At this point if Trump wins I'm seriously considering going back to Canada .... Electing Hillary means 4 more years of the same..which isn't too terrible. Really I'm more curious about the Fed and earnings. so far the market has been quite resilient to the idea of higher interest rates which is good, means the overall consensus is the economy is healthy. However earnings aren't healthy and that is something to be nervous about.
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In my view, this year's Dem (a/k/a the Goldman Sachs candidate) is on the side of the banks, intrinsically. She is with the hedger side. As an American expat, I can only expect the regulatory regime under Hillary to become more onerous and punitive to me. I can just barely hold on to a bank account abroad now as it is.
The other candidate is on the speculator side, my team. I would expect any initiatives coming out of there to strongly favor the side of the speculators, not the hedgers. And if he wins, and they have to call out the National Guard, there is going to be some great theta selling.
I have short theta/vega systems developed for /ES but primarily using Iron Condors. It seems that in some of the ratio spreads you're trading that you've effectively hedged out a chunk of the short gamma risk, but it seems as though a surge in the VIX / implied vol in /ES options could cause much greater losses than expected if one is only modeling the hit on the directional exposure and not also on the vol. If you are trading the outright short -3 delta puts, how do you protect yourself from an explosion in vega in the event of a rapid sell off?
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