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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
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Interesting, but I don't understand. Why do they not converge? Also this makes it sound like CME set the VSR and then VSR sets the market price. Well doesnt that basically mean CME sets the market price? isn't that the definition of price manipulation?
Under the VSR system, storage rates at contract delivery points can be adjusted up or down to “reflect the true value being discovered in the physical market,” according to CME - which has used the mechanism in past situations.
I have a question for you and others on here who are more experienced in shorting premium in the commodities markets. I understand that getting a certain level of premium is important for this to be long-term viable (I think myrrdin referred to $200-400/contract recently), so I am curious what your thoughts are on selling verticals rather than naked options?
I haven't been in meats and grains thus far, but trying some hypothetical trades results in IM/MM that are almost 60-70% lower for verticals compared to naked shorts. Of course this means paying much more in commissions for same amount of premium shorted.
Just curious what your thoughts are on this (similar to Ron's earlier 1X1 / 1x2 strategy on ES) in commodities space. Given how a mere 3-4 cent move impacts overall premium of a position, wondering if you had any experience applying a vertical strategy and how those results compared to naked shorts.
I have to admit that I do not make the kind of excellent quantitative studies as Ron does.
When trading commodities (and not indices) I usually sell naked options. There are three reasons:
These trades are directional trades, and I have to use rather close stops (compared to Ron's concept for selling ES puts).
My portfolio is strongly diversified, and each trade uses only a small percentage of my account size. Thus, a large quick move of one commodity does not affect the account.
Fees are smaller. The percentage of loosing trades is probably higher compared to selling FOTM ES puts. And of course you have to pay fees for the loosing trades, too. The further you go OTM (and, thus, the more options you sell per $ premium) the more relevant this topic gets.
Thus, I understand why Ron is selling spreads, but prefer to sell naked options for my account.
There is one exception: I sell some options in my IB account where I hold my stocks. Here I prefer selling spreads as they use a large margin for naked options.
Currently I hold the following positions in the short option portfolio (positions in brackets are already liquidated and only included in the list to make a comment):
(LHJ C80)
(LHJ P66)
Liquidated this strangle with a nice profit, as LH price moved down more than I had expected.
LHM P72
Sold some of these puts yesterday, and intend to sell more of them (3 more lots of LHM P72 and P70) at a lower price, if given the opportunity.
LCJ P114
LCJ C134
LCM P100
LCM C126
Longterm.
(WZ C6)
Liquidated this position with a small loss, and placed an order for the WZ C6.5 above the market. Very longterm.
I also hold several futures covered by short options as longterm trades.
Currently the percentage of longterm outright futures or futures spread trades is larger as I find more possibilities here than in option selling.
I intend to sell the WZ C6.5, as stated in my most recent post.
In addition I intend to sell short-dated SX calls (expiry in June) just above the market. Crop in Brazil seems to get very large, and gains here should compensate for losses in Argentine. I assume that acreage in the US will get larger (and definitely will not get smaller) than expected. I prefer the new crop contract as the risk of sudden moves (eg. because of a strike in Brazil or Argentine) is smaller. The short-dated contract avoids weather risk during the blooming period in the US during August.