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Changing rollover dates for CL
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Changing rollover dates for CL

  #21 (permalink)
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  #22 (permalink)
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trendisyourfriend View Post
Why not use two instances of the T&S window with the contracts you want to evaluate ?

You want to look at total daily volume to determine the rollover date, did not see this in T&S.

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  #23 (permalink)
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Fat Tails View Post
You want to look at total daily volume to determine the rollover date, did not see this in T&S.

What volume is there if not the total volume up to now ? or if it is just the volume of the current session, what difference does it make since volume should be higher there too at some point.

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  #24 (permalink)
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Fat Tails View Post
But then you will only be alerted once the volume has shifted to the new contract.

I actually prefer rolling at the close prior to rollover day, so I am ready to roll, if the new front month reaches something like 70% or 80% of the volume of the old contract.

Anyhow, for financial and metal futures the rolldates are pretty obvious, so it is only necessary to check for rolldates for energy futures and agriculturals.

Your indicator would be even more useful, if it displayed the front month volume and the volume of the next contract month as well. This would allow to switch just in time.

It should be pretty simple to add the current contract volume. Personally, I don't switch over until the new contract is trading more then the old. Since the indicator only shows the contract with the highest volume for each instrument specified, I just have to glance at it at the beginning of the trading day, and if the month that it is showing for an instrument is not the month that I am trading, that means I should be switching to the new month since the month it is showing is the highest traded. The indicator should never have to be updated, you just specify once the name of the instrument, no need specify or ever update any contract months.


Last edited by monpere; January 4th, 2011 at 07:29 PM.
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  #25 (permalink)
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monpere View Post
It should be pretty simple to add the current contract volume. Personally, I don't switch over until the new contract is trading more then the old. Since the indicator only shows the contract with the highest volume for each instrument specified, I just have to glance at it at the beginning of the trading day, and if the month that it is showing for an instrument is not the month that I am trading, that means I should be switching to the new month since the month it is showing is the highest traded. The indicator should never have to be updated, you just specify once the name of the instrument, no need specify or ever update any contract months.

What are the pros/cons of switching before the new contract has more volume, and of switching after the new contract has more volume?

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  #26 (permalink)
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legend4life View Post
What are the pros/cons of switching before the new contract has more volume, and of switching after the new contract has more volume?

The CL contract is a very special contract. Delivery takes place in Cushing, Oklahoma, which is absolutely stupid. Imagine the worlds crude prices depend on a pipeline depot in the middle of nowhere. I do not know any other futures contract that has such a nonsense feature.

There are some implications. The price of the old front month can be easily driven mad, by physical delivery constraints as there is no way around this depot. If the depot is empty, because the pipeline supply was interrupted - for example following a hurricane on the gulf coast - short sellers are squeezed because they cannot deliver the product, even if there is plenty available in other storages. On the other side if the depot is full, the long positions may suffer, because they cannot get rid of the product.

This means that there can be wild price swings affecting the old contract prior to expiration. So as a general rule, I would switch prior to volume crossover, never after volume crossover. By the way the principal data vendors of daily data - CSI and Pinnacle - also switch early to avoid price distortions.

The exact rollover date depends on how much liquidity you want to see. Cl typically trades at around 200,000 contracts per day. For example you could wait until the new contract has seen 100,000 contracts per day. If you had applied this rule to CL 04-11, the 100,000 contracts were reached on Wednesday, February 16 and you would have switched on the morning of Thursday, February 17. As the new contract volume was already higher on February 17, this rule would have led to the same rollover day as the volume crossover rule.

Back to Cushing: This stupid Cushing situation has lead to a permanent contango during the last years. Any long only commodities fund, who was invested in the WTI crude contract, was heavily penalized. The ICE Europe traded Brent futures would have yielded much higher returns, as there are few delivery constraints.

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  #27 (permalink)
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Fat Tails View Post
The CL contract is a very special contract. Delivery takes place in Cushing, Oklahoma, which is absolutely stupid. Imagine the worlds crude prices depend on a pipeline depot in the middle of nowhere. I do not know any other futures contract that has such a nonsense feature.

There are some implications. The price of the old front month can be easily driven mad, by physical delivery constraints as there is no way around this depot. If the depot is empty, because the pipeline supply was interrupted - for example following a hurricane on the gulf coast - short sellers are squeezed because they cannot deliver the product, even if there is plenty available in other storages. On the other side if the depot is full, the long positions may suffer, because they cannot get rid of the product.

This means that there can be wild price swings affecting the old contract prior to expiration. So as a general rule, I would switch prior to volume crossover, never after volume crossover. By the way the principal data vendors of daily data - CSI and Pinnacle - also switch early to avoid price distortions.

The exact rollover date depends on how much liquidity you want to see. Cl typically trades at around 200,000 contracts per day. For example you could wait until the new contract has seen 100,000 contracts per day. If you had applied this rule to CL 04-11, the 100,000 contracts were reached on Wednesday, February 16 and you would have switched on the morning of Thursday, February 17. As the new contract volume was already higher on February 17, this rule would have led to the same rollover day as the volume crossover rule.

Back to Cushing: This stupid Cushing situation has lead to a permanent contango during the last years. Any long only commodities fund, who was invested in the WTI crude contract, was heavily penalized. The ICE Europe traded Brent futures would have yielded much higher returns, as there are few delivery constraints.

Interesting. Speaking about delivery, here's a stupid question, which I should probably know the answer to. But as futures traders we are buying contracts of real commodities. If I buy an oil contract and keep it for longer then the duration of the contract month, do I have to take physical delivery of 5 barrels of oil waiting for me in Cushing, Oklahoma?

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  #28 (permalink)
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monpere View Post
Interesting. Speaking about delivery, here's a stupid question, which I should probably know the answer to. But as futures traders we are buying contracts of real commodities. If I buy an oil contract and keep it for longer then the duration of the contract month, do I have to take physical delivery of 5 barrels of oil waiting for me in Cushing, Oklahoma?

5 barrels ?? One contract are 1000 barrels.
The official settlement type is physical delivery. But I think I read somewhere that your broker will contact you and ask if you really want to take/ deliver the product.

Perhaps someone could clarify. Has anyone here forgotten to close a position and held until expiration date at some point?

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monpere View Post
Interesting. Speaking about delivery, here's a stupid question, which I should probably know the answer to. But as futures traders we are buying contracts of real commodities. If I buy an oil contract and keep it for longer then the duration of the contract month, do I have to take physical delivery of 5 barrels of oil waiting for me in Cushing, Oklahoma?

Yes, if you hold a long contract until expiry, you will have to take delivery in Cushing, Oklahoma. Typically your broker will close out your position, before this happens, but if you are unlucky and your broker does not do that for you, you will take delivery.

If you look at the contract specifications - link below - you will get 1,000 barrels. The settlement type is shown as physical, which means physical delivery.

Light Sweet Crude Oil

Excerpt:

(A) Delivery shall be made F.O.B. at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to TEPPCO, Cushing storage or Equilon Pipeline Company LLC Cushing storage. Delivery shall be made in accordance with all applicable Federal executive orders and all applicable Federal, State and local laws and regulations.

So do not listen to floor traders, they will tell you that the crude will be delivered to your garden. This is not true. It will be delivered to a pipeline depot in Oklahoma. You can then transfer it to one of the refineries and use the gasoline to run your car, the diesel for the break of your wife and the heavy fuel, well, that is dirty stuff, you need to find some one to crack it up.

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Brent Crude Allows for Cash Settlement


If you look at the IPE traded Brent contract, which also has excellent liquidity (150k contracts per day for Brent Crude @IPE compared to 300k contracts per day for WTI @NYMEX), it allows for cash settlement.

An excerpt from the contract specifications:

Delivery/Settlement Basis

The ICE Brent Crude futures contract is a deliverable contract based on EFP delivery with an option to cash settle, i.e the ICE Brent Index price for the day following the last trading day of the futures contract.


https://www.theice.com/productguide/ProductDetails.shtml?specId=219

So you can opt for cash settlement after expiry. The contract is used for hedging by professional traders, as you can swap it easily for a physical position (Echange For Physical).

If you trade futures, you should always first read and understand the contract specifications of the contract traded. This the nuts and bolts of a trader, all the ugly stuff, such as daily price limits, expiry dates, first notice dates, price discovery, margins, opening times can be found in this document.

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