|
PureBytes Links
Trading Reference Links
|
I appreciate the info on the energies. I am familiar with strips trading as
you can easily trade short rate bundles. The backwardation/contango problem
combined with thin back months is the main problem. Yes, this problem does
occasionally occur with interest rates but the ease of getting prices on and
trading 360 day money takes care of that. BTW - do they trade energies as
strips/bundles and if so how deep and wide are the markets.
I have spoken with other ctas regarding their approach and so far what most
use seems to be a shorter term backadjusted with an overlap period - for
example, corn from 88 - 92 with the next snapshot covering 90 - 94. Would
still appreciate any further comments
on 7/27/00 7:14 PM, Gitanshu Buch at OnWingsOfEagles@xxxxxxxxxxxxx wrote:
>> I am currently changing my prospectus to allow trading of
>> grains,metals,energies,etc. I was wondering what the people trading these
>> markets use. As I see it the backadjusted method is fine for mov avg
>> systems but is biased when testing a breakout system. A perpetual contract
>> would be best but it appears the back months in many physicals are
> extremely
>> thin somewhat negating their price value - the meats/softs for example.
>
> Speaking for energies:
> a/ CL is pretty deep for back months that end in quarter-ends (Mar Jun Sep
> Dec).
> b/ The front 3 months on CL are pretty deep and can be patched together on
> expiration day for a 2-3 tick adjustment.
> c/ HU & HO the best 2 month sets are front and front+1. Again they can be
> patched together with minimal adjustment.
> d/ NG: Front month only.
>
> You will sometimes see open interest in Qtr end back months for HU, HO and
> NG but this is commercial activity and to be avoided if your signals are
> derived from eod analysis. Back month settlements and intraday real time
> prices have very little connection with each other. Back month bid-ask
> spreads are also blown up huge (front month spread in futures of HU/HO is
> 5-10 ticks, back month is 50-80 ticks. CL front month is 2 ticks, back
> months are 8-15 ticks depending on volatility.
>
> Another feature that needs to be factored into this market is the change of
> the forward curve - unlike interest rate markets or gold, this market
> willingly goes from contango to backwardation and back - and stay that way -
> due to genuine reasons. So signals generated by front month contracts taken
> in very back month contracts will probably cause trouble more often than
> not.
>
> One other offbeat workaround is the construction of a strip (the average
> price of a 6 month delivery schedule based on the average current price of
> the 6 consecutive month futures contracts). That is, if you want to trade
> strips with their attendant margin etc requirements.
>
> 2 pips worth.
>
> Gitanshu
>
>
|