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Futures trading question
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Futures trading question

  #1 (permalink)
Elite Member
toronto canada
 
Futures Experience: Beginner
Platform: ninjatrader
Favorite Futures: stocks, futures
 
strike333's Avatar
 
Posts: 25 since Sep 2012
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Futures trading question

Hi I like to ask why the further the contract months are the higher its price. Which months do people use typically? like 3 months back? I'm looking at CL and want to hold it for like around 5 months. Should I buy let say CL 06-15 contract? Or just buy the CL 02-15 and sell it next month and buy the next contract and do the same buy&sell every month?

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  #3 (permalink)
Market Wizard
Boca Raton
 
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strike333 View Post
Hi I like to ask why the further the contract months are the higher its price. Which months do people use typically? like 3 months back? I'm looking at CL and want to hold it for like around 5 months. Should I buy let say CL 06-15 contract? Or just buy the CL 02-15 and sell it next month and buy the next contract and do the same buy&sell every month?

Futures contracts that are further out reflect a higher cost of storage, carry, etc

What you save in terms of commissions (rolling months from one to another) you may lack in liquidity and/or good fills.
My suggestion for a fundamental long term view is to look at the closet month, check it's liquidity and compare it to further out months. Trade a contract that has decent open interest and volume. You should strive to exit and/or enter without difficulty, and lack of liquidity may not be a accommodating as such.

Matt

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #4 (permalink)
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Matt

So what you're saying is to buy & sell every month instead of buying a contract that's further out with higher price.

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  #5 (permalink)
Market Wizard
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strike333 View Post
Matt

So what you're saying is to buy & sell every month instead of buying a contract that's further out with higher price.

This is what I would do.

Your question also implies that you have a long term view on a commodity and willing to withstand further price declines.
My additional suggestion is to exercise strict money management and not try to catch a bottom here.
Many trading "wizards" called for bottoms along the way....Not here to discuss prices, this was just a suggestion.
(There is a substantial risk of loss in futures trading).
Matt

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #6 (permalink)
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strike333 View Post
Matt

So what you're saying is to buy & sell every month instead of buying a contract that's further out with higher price.

What @mattz is saying is you should compare / consider rolling over every month vs buying further out. Volume today in crude on the front month was 450K contracts. If you go out 5 months to the June contract it only traded 69K times today. Additionally, the spread could be fairly wide at any given time on the June contract. This means you're going to have trouble getting in at a price you want and exiting at a price you want. These costs could easily outweigh the cost of rolling month to month.


Last edited by empty; January 14th, 2015 at 01:22 AM. Reason: Grabbed the wrong contract volumes
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  #7 (permalink)
Market Wizard
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I would recommend you research "Futures Roll Cost" and "Futures Roll Yield". You will see that you can lose a lot of money rolling in a contango market under many circumstances.

FYI, while it is true that the Crude market is currently in contango (long dated markets higher prices than spot markets) you only have to go back to October to see the opposite.

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