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What is a poor algo to do.
Clipper Data free blog showed a 4 month high in crude sitting in the Gulf waiting to unload. The weekly 5 year average shows we are ready for the winter noose dive in refining. Spec longs all time high. And now two weks in a row of whip saw inventory reports. This isn't going to end well.
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
Random Musings of a Spread Trader....
Haven't done this in a while, and its basically Xmas Eve so nobodies watching, but here goes anyway...
Been some huge curve shifts the last two months. If you look at the chart below, you can see that in the last two months the front of the curve, has dropped $8/bbl and rebounded to almost the exact same level.
While G7 is virtually unchanged to where it was two months ago, the back end of 2017 is almost $2 higher, while 2020 is over $2 lower.
If we compare, the G7-Z7 spread, to the Z7-Z0 spread (ie the G7-Z7-Z0 Butterfly) this is what we get for the last 3 months.
Pretty impressive $6 move in a Butterfly, given that the prompt is unchanged over the last 2 months.
Here's a different way to think of this.
The following scatter chart shows the Month 2 - Month 10 - Month 34 Butterfly on the y-axis vs the Month 2, 10, 34 Average Outright price on the x-axis, for the last 5 years. As you can see a simple polynomial line of best fit has an R2 of 64.88. This means that 64.9% of price in the Butterfly is explained by the Average Price.
The average price at settle today (23rd) was $55.11 and the Butterfly was <$3.41>.
The polynomial regression predicts the butterfly to be $0.98 a difference of $4.39! The standard error of the regression is $2.14, so we are currently 2.05 multiples of the standard error away from the polynomial predicted price.
The linear regression, which isn't as good, predicts $0.20 a difference of $3.61! The standard error is larger at $2.41, but that still means we are currently 1.5 multiples of the standard error away from the linear predicted price.
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
You might check some of the journals of people who trade CL. This thread is predominantly fundamentals/news/discussion orientated rather than positions/trades related. If your a Crude Oil Analyst we would appreciated anything you posted that might interest us.