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commodity spreads

  #61 (permalink)
 
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 ElChacal 
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1) Soybeans are clearly inverted


2) Spread ZSQ5-ZSU5 and ZSQ5-ZSX5 are widening


3) Commercials shorted last week and OI has been gradually falling. This signal for me is still hard to interpret.

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  #62 (permalink)
 
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 ElChacal 
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@SMCJB as Sept. soybeans approach expiration and they are in clear Inversion, I was wondering how should I play the rolling yield on this contract.

Would it be Buying the November discount and Selling the September premium?

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  #63 (permalink)
 
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 SMCJB 
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I don't trade Soybeans often but yes Sep is Premium to November. If you roll (sell Sep/buy Nov) you won't actually collect premium but you will have a position in November with a lower cost basis.

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  #64 (permalink)
 
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 ElChacal 
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@SMCJB so you would still "hope" November price rises if you are maintaining the long position (that you got at a discount)?
I am trying to understand a little better the roll-yield play.

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  #65 (permalink)
 
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 SMCJB 
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Well hopefully you have more conviction than 'Hope'!

If your trading a spread as a position you profit (or lose) based upon how the spreads move, aka how the individual months move in relation to each other.

Your not doing that, your rolling a long out of the spot month into the next month to avoid delivery. In this scenario you are exchanging outright risk in September for November. What the spread does after you execute the trade is nothing other than hindsight - although spread movements going into expiration normally give a good indication of fundamentals.

People talk about roll yield, meaning whether you paying more or less for the next month. In this case you have a positive yield. Roll yield is very important in two scenarios's, A) when you have a fixed number of dollars to invest and are using futures to proxy the underlying (think USO, UNG etc the commodity ETFs) and B) when your in an index fund that is always long. Contango markets (negative roll yield) normally kill these types of investments.

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  #66 (permalink)
 
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 ElChacal 
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@SMCJB Thanks for the great explanation. I got a better picture now.

I guess it is important to understand that you would not collect the premium, it is not a given profit. That was basically my question.

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  #67 (permalink)
 
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 SMCJB 
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Correct. It's not like an option spread where there are a difference in 'premiums'.
Glad I could help.

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  #68 (permalink)
 jokertrader 
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Do u stick to commodity spreads? or also trade outrights and options as well? I am starting to read up on commodity spreads and have a Qtrader account so want to start practicing

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  #69 (permalink)
 myrrdin 
Linz Austria
 
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jokertrader View Post
Do u stick to commodity spreads? or also trade outrights and options as well? I am starting to read up on commodity spreads and have a Qtrader account so want to start practicing

I mainly sell Options (outrights, spreads), but also trade future outrights and spreads.

Currently my only spread trade is the CZ-CU, which I entered recently. Seasonals suggest that this spread should move upwards until early August. Soil moisture is good in a large part of the US, thus there is a high probability of success.

Risk: Very high temperatures in July during the pollination period.

Best regards, Myrrdin

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  #70 (permalink)
CrimsonMacaw
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For those who trade in any of the European markets, what are some good spreads to do there?

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