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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
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Posts: 5,059 since Dec 2013
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Bulk of my positions are currently in the Dec15-Dec17 window although I do still have a smaller position in Nov15 which I'm currently liquidating and some odd lots past Dec17. I'm not sure I understand your question regarding risk and seasonality? (Are you implying seasonality makes commodities less risky?)
Well what I meant is that I have read about Corn trading from Dec15 to Dec16 and Jul-Dec on other seasonal crops basically the common wisdom on spread patterns but I hadn't heard about sth similar with CL.
Very interesting, I'm a newbie on all this spreading stuff and futures in general. I appreciate the input. Thanks.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
The way I think about it, there's seasonality that's caused by supply/demand imbalance and then there's seasonality caused by specification/product differences. I personally tend to think of them as two very different factors but of course they can be related and correlated
In energies when people talk about seasonality they often mean
Natural Gas - Demand>Supply in Winter, Supply>Demand most of the summer - Hence Winter trades at a premium to Summer.
Heating Oil - Same as NatGas. Demand>Supply in Winter, Supply>Demand in summer - Hence Winter trades at a premium to Summer.
Gasoline/RBOB - Opposite. Demand>Supply in Summer, Supply>Demand in Winter - Hence Summer trades at a premium to Winter.
A great example of that seasonality is the March/April spread in Natural Gas. If NatGas stocks are low going into a winter, March/April (aka "The Widow Maker") will scream to prices that seem completely unrealistic. If stocks are high, March/April drops to flat.
With regards to specification or product changes the most obvious in energies is
Gasoline/RBOB - RVP specs in the summer are more restrictive than the Winter, so the cost to make summer grade gasoline's is higher than winter grade.
While the examples above may seem obvious there are many less obvious examples. WTI when refined yields more Gasoline than Brent, and Brent yields more Heating Oil than WTI. Hence back in the days when Brent & WTI were both world Benchmarks, WTI traded at a higher premium in the summer than winter, because of the difference in product yields.
With regards to crops I believe what you referring to is what they call old crop/new crop but i'm not a Ags trader so I'll stick to energies.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Market down again today, contango widening significantly in the first 12 months EXCEPT for Sep/Oct!
Sep/Oct ~ -72 (-1 on day)
Oct/Nov ~ -119 (-16)
Nov/Dec ~ -99 (-9)
Dec/Jan ~ -92 (-8)
Jan/Feb ~ -84 (-7)
Means the Sep/Oct/Nov Butterfly is now trading +47 (+15 on day) while Oct/Nov/Dec ~ -20 (-7) and Nov/Dec/Jan ~ -7 (-1).
To continue my terrible timing this month I'm now pretty much flat Nov, having taken my Nov/Dec position off over the last 3 days.
Urhhh!
conventional wisdom states at this time of year is storage time for HO before first winter cold strikes.
What's your take on this? The Sept-Feb spread looks interesting.