collecting premium for a risk free 2 digit return

Discussion in 'Index Futures' started by parisd, Jun 26, 2006.

  1. Check out Friday's closing prices in gold futures, and you'll see what I mean.

    Sep '06 gold: $646.6
    Oct '06 gold: $651.5

    BUY Sep '06 Gold at $646.6 with intention to take delivery.
    SELL Oct '06 Gold at $651.5 with intention to deliver.
    You net 0.758% in one month, which is about 9.1% annualized.
    Factor in slippage, and a 9% annual yield is more realistic.

    If my AUM was a bit more substantial, I'd be quietly taking these plays instead of pointing them out on ET.
     
    #31     Aug 5, 2006
  2. Pabst

    Pabst

    You have bad prices. A one month gold spread is trading at $3.30. Implied yield before storage of just over 6%.
    The "juice" in any cost of carry spread (including Index programs) is the ability to fund the trade at below market rates. That's exactly why many brokerage/trading firms will give competitive interest rates on trading account balances. For someone who can borrow size at 4-5% these trades work.


    BTW: Sept is a bastard month in Gold Use Aug-Oct for you're calculations
     
    #32     Aug 5, 2006
  3. It's possible that I've miscalculated this.
    Like I've said, I've never actually put on a contango trade.
     
    #33     Aug 5, 2006
  4. "Switch" markets aren't locks, even in financial and hard asset markets; just ask the boys at Granite and LTCM. Gold, Silver and especially Copper can blow through their normal reference oscillator.

    3 guys in Copper blew out going long the switch. This is a pit with like 40 traders.
     
    #34     Aug 6, 2006